<PAGE> 1
[LOGO: MFS] Semiannual Report
INVESTMENT MANAGEMENT February 28, 1997
MFS(R) World Asset Allocation Fund
[GRAPHIC OMITTED:2 PEOPLE IN FRONT OF WINDOW]
Learning financial basics the easy way (see page 38)
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter from the Chairman.................................................... 1
Portfolio Allocation........................................................ 2
Portfolio Managers' Profiles................................................ 6
Fund Facts.................................................................. 7
Performance Summary......................................................... 7
Portfolio of Investments.................................................... 9
Financial Statements........................................................ 18
Notes to Financial Statements............................................... 25
Independent Auditors' Report................................................ 37
The MFS Family of Funds(R).................................................. 38
The ABCs of Investing....................................................... 39
It's Easy to Contact Us..................................................... 40
Trustees and Officers....................................................... 41
</TABLE>
HIGHLIGHTS
- - FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 10.61%, CLASS B SHARES 10.29%,
AND CLASS C SHARES 10.33%.
- - WHILE THE DOMINANT STORY IN WORLD FINANCIAL MARKETS IN THE PAST SIX MONTHS
HAS BEEN THE STEADINESS AND LONGEVITY OF THE U.S. ECONOMIC RECOVERY AND AN
EVER-RISING STOCK MARKET, OUR ECONOMIC MODELS, WHICH INDICATE RELATIVE VALUE
SHIFTS, CONTINUE TO WARN OF OVERALLOCATION TO U.S. MARKETS.
- - THERE HAS BEEN LITTLE CHANGE TO THE BROAD REGIONAL EXPOSURES, WHICH ARE 56%
EUROPE, 38% ASIA/PACIFIC, AND 6% THE AMERICAS.
- - WITHIN WORLD BOND MARKETS, WE HAVE CUT OUR INTERNATIONAL BOND WEIGHTINGS FROM
20% OF THE PORTFOLIO TO 11%, REFLECTING THE CURRENT LOW-YIELD ENVIRONMENT IN
EUROPE AND FALLING YIELDS WITHIN THE DOLLAR-BLOC COUNTRIES.
<PAGE> 3
LETTER FROM THE CHAIRMAN
Dear Shareholders:
For the six months ended February 28, 1997, Class A shares of the Fund provided
a total return of 10.61%, Class B shares 10.29%, and Class C shares 10.33%. All
of these returns assume the reinvestment of distributions but exclude the
effects of any sales charges, and they compare to returns of 22.50% for the
Standard & Poor's 500 Composite Index (S&P 500), a popular, unmanaged index of
common stock performance; 2.44% for the Morgan Stanley Capital International
EAFE (Europe, Australia, Far East) Index, an index of international stocks;
5.38% 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 -2.66% for the J.P. Morgan Non-Dollar Government
Bond Index, an international bond index.
The dominant story in world financial markets in the past six months has been
the remarkable steadiness and longevity of the U.S. economic recovery, now
entering its sixth year. This long and moderate recovery has been accompanied by
an ever-rising stock market boosted by better earnings, low inflation, and a
favorable regulatory and monetary environment. These ever-higher stock prices
have been a concern to us. In fact, our economic models, which indicate relative
value shifts, continue to warn of overallocation to the U.S. market. We have
heeded that warning by underrepresenting the U.S. stock market and
overrepresenting the overseas stock markets during the last six months.
Our stock weightings overseas, however, have shifted from an Asian-dominated
portfolio to one more tilted toward Europe, where the stirrings of renewed
growth and lower valuations seem to be the overarching theme. Within the world
bond markets, we have progressively cut our international bond weightings from
20% to approximately 11%. This reflects the current low-yield environment in
Europe and falling yields within the dollar-bloc countries. The U.S. high-yield
corporate bond market, while not inexpensive by historic measures, still
provides what we believe to be value in yield terms as long as the U.S. economic
recovery continues. We will maintain our 8% weighting here until conditions
change. We have taken the view that the U.S. government bond market is bound by
a narrow band of yield values, prompting us to use this market sparingly when
yields migrate to the high side of our estimated range and to revert to a zero
weighting when we reach the low side of the yield range. We currently have no
U.S. government bonds.
1
<PAGE> 4
LETTER FROM THE CHAIRMAN - CONTINUED
The Fund should be viewed as neither a market-timing vehicle nor a balanced
fund but, rather, what we believe is the expression of the best relative value
choices available to MFS investment professionals that can be reasonably
researched and managed. What follows are the reports of representative
subportfolio managers who have helped the Fund achieve its performance over the
past six months.
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
March 11, 1997
PORTFOLIO ALLOCATION
[PIE CHART]
International Stocks 44.1%
Other 19.8%
U.S. Stocks 16.6%
International Bonds 11.3%
U.S. High Yield 8.2%
For a complete breakdown, refer to the Portfolio of Investments.
2
<PAGE> 5
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 Vons (supermarkets), Rite Aid (drug stores), and Pharmacia and Upjohn
(pharmaceuticals). Currently, our top three sectors are leisure (16.2%),
technology (13.5%), and financial services (10.7%). Our outlook continues to be
cautious. Given the current level of interest rates, equity valuations are rich
and leave no margin for error. We continue to maintain a conservative, low-risk
approach to our stock selection.
-- John F. Brennan, Jr.
<TABLE>
<S> <C>
FIVE LARGEST U.S. STOCK HOLDINGS AS OF 2/28/97 % OF NET ASSETS
- ---------------------------------------------------------------------------------
Pharmacia & Upjohn (Medical and Health Products) 0.7%
- ---------------------------------------------------------------------------------
MCI Communications Corp. (Utilities - Telephone) 0.7%
- ---------------------------------------------------------------------------------
Tyco International Ltd. (Consumer Goods and Services) 0.6%
- ---------------------------------------------------------------------------------
Harrah's Entertainment, Inc. (Entertainment) 0.6%
- ---------------------------------------------------------------------------------
Philip Morris Cos., Inc. (Consumer Goods and Services) 0.6%
- ---------------------------------------------------------------------------------
</TABLE>
INTERNATIONAL STOCK MARKETS - 44.1%
Internationally, we emphasize stock selection as opposed to country or industry
selection. Priority is placed on companies that we believe will generate
above-average earnings growth and that are trading at attractive valuations,
regardless of their home country.
As of February 28, 1997, 44% 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 56% Europe, 38% Asia/Pacific, and 6% the Americas.
The largest individual country exposures are the United Kingdom (22%), Japan
(20%), and France (7%). Roughly 18% of our international holdings are in
emerging markets, 13% of which are in Southeast Asia (including Hong Kong and
Singapore).
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/additions have been of companies that we believe will show steady
earnings growth regardless of the state of the global economy. While there has
been limited turnover in the Fund's 20 largest international holdings, over the
past six months we have added positions in several companies that fit the above
description. These include British Aerospace (United Kingdom - defense), Sony
(Japan - consumer electronics), and Novartis (Switzerland - pharmaceuticals).
-- David Mannheim
3
<PAGE> 6
INTERNATIONAL STOCK MARKETS - CONTINUED
<TABLE>
<S> <C>
FIVE LARGEST INTERNATIONAL STOCK HOLDINGS AS OF 2/28/97 % OF NET ASSETS
- ---------------------------------------------------------------------------------
PowerGen PLC (Utilities - Electric - United Kingdom) 2.5%
- ---------------------------------------------------------------------------------
Canadian National Railway Co. (Railroads - Canada) 1.3%
- ---------------------------------------------------------------------------------
Astra AB, Free Shares, "B" (Pharmaceuticals - Sweden) 1.1%
- ---------------------------------------------------------------------------------
DDI Corp. (Telecommunications - Japan) 1.1%
- ---------------------------------------------------------------------------------
ASDA Group PLC (Stores - United Kingdom) 1.1%
- ---------------------------------------------------------------------------------
</TABLE>
U.S. HIGH-YIELD CORPORATE BOND MARKET - 8.2%
The U.S. high-yield market continued to outperform other domestic fixed-income
markets. It benefited both from continued improvement in credit quality, as
companies have fared well during this period of stable economic growth, and from
investors' continued search for higher yields. We have emphasized holdings in
companies in which we think credit quality will improve due to good growth
potential or from being able to generate enough free cash flow to pay down debt.
We have concentrated our holdings in the bonds of better-quality high-yield
issuers because we do not think investors are adequately compensated for the
risk of lower-tier credits.
-- Joan S. Batchelder
<TABLE>
<S> <C>
FIVE LARGEST HOLDINGS AS OF 2/28/97 % OF NET ASSETS
- ---------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp. (Steel) 0.7%
- ---------------------------------------------------------------------------------
Building Materials Corp. (Building) 0.4%
- ---------------------------------------------------------------------------------
Silgan Corp. (Containers) 0.4%
- ---------------------------------------------------------------------------------
BE Aerospace, Inc. (Aerospace) 0.4%
- ---------------------------------------------------------------------------------
Jitney-Jungle Stores (Supermarkets) 0.4%
- ---------------------------------------------------------------------------------
</TABLE>
U.S. GOVERNMENT BOND MARKET
The U.S. government bond market maintained a narrow range during the past six
months, as economic activity continued at its recent strong pace and the Federal
Reserve Board remained on the sidelines. Rates on 10-year Treasury securities
eased from 7% at the end of August to 6.5% at the end of February. After holding
a 10% position earlier in 1997, we have returned to a zero weighting as rates
moved lower in February. While there has been no sign of a pickup in
inflationary pressures, a cautious attitude is warranted as we have seen
anecdotal signs that wage pressures could emerge in upcoming months.
-- Geoffrey L. Kurinsky
4
<PAGE> 7
INTERNATIONAL BOND MARKETS - 11.3%
Fiscal austerity combined with easing monetary policy throughout Europe has
continued to bring about substantial tightening of yield spreads, as inflation
has remained subdued. Concerns remain about who will participate in the first
stage of European monetary union. The potential exists for delays should
economic convergence become impossible within the predetermined timeframe due to
continued sluggish growth and persistent deficits.
We benefited from our emphasis on the higher-yielding European markets for much
of 1996, as a large amount of yield convergence occurred. For example, 10-year
yield spreads in Italy declined by 150 basis points (1.5%) versus yields in
Germany since September. We feel that improved growth prospects within most of
Europe may limit further convergence in the near term. Global growth prospects
may also push yields slowly higher in Canada and Australia as commodity prices
continue to recover. In Canada, 10-year yields have fallen more than 100 basis
points (1.0%) since September 1996 and are currently trading below those in the
United States.
Lastly, monetary conditions in Japan remain very accommodative; the yen has
weakened against the U.S. dollar by more than 13% since September 1996, reducing
the scope for lower interest rates. The recovery in Japan, albeit fragile, is
largely export led.
-- Leslie J. Nanberg
<TABLE>
<S> <C>
LARGEST INTERNATIONAL BOND HOLDINGS AS OF 2/28/97 % OF NET ASSETS
- ---------------------------------------------------------------------------------
United Kingdom Treasury (United Kingdom) 10.7%
- ---------------------------------------------------------------------------------
United Mexican States (Mexico) 0.3%
- ---------------------------------------------------------------------------------
Hellenic Republic (Greece) 0.3%
- ---------------------------------------------------------------------------------
</TABLE>
PORTFOLIO MANAGERS' PROFILES
The Asset Allocation Committee consists of Messrs. Swanson and Nanberg as well
as A. Keith Brodkin and Jeffrey L. Shames, Chairman and President of MFS,
respectively, and John W. Ballen, Senior Vice President and Chief Equity Officer
at MFS. The individuals responsible for managing the assets in the asset classes
are as follows:
JOAN S. BATCHELDER is Senior Vice President of MFS and head of the Fixed Income
High Yield Department. She manages the high-yield fixed-income portion of the
Fund. Ms. Batchelder 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 Investment Officer in the Fixed Income
5
<PAGE> 8
PORTFOLIO MANAGERS' PROFILES - CONTINUED
Department. Ms. Batchelder was appointed Assistant Vice President - Investments
in 1979, Vice President - Investments in 1980, and Senior Vice President in
1983.
JOHN F. BRENNAN has been a member of the MFS investment staff since 1985. A
graduate of the University of Rhode Island and Stanford University's Graduate
School of Business Administration, he began his career at MFS as an industry
specialist and was promoted to Assistant Vice President - Investments in 1987.
He was named Vice President - Investments in 1988 and Senior Vice President in
1995. Mr. Brennan became Portfolio Manager of MFS(R) Capital Growth Fund in
1995.
GEOFFREY L. KURINSKY began his career at MFS in 1987 in the Fixed Income
Department. Mr. Kurinsky is a graduate of the University of Massachusetts and
Boston University's Graduate School of Management. He was named Assistant Vice
President in 1988 and Vice President in 1989. In 1992, he became Portfolio
Manager of MFS(R) Limited Maturity Fund. He was named Senior Vice President in
1993.
DAVID MANNHEIM began his career at MFS in 1988 as a research specialist and was
promoted to Assistant Vice President - Investments in 1991, Vice
President - Investments in 1992, and Senior Vice President in 1997. In 1995, he
was named Portfolio Manager of MFS(R) Institutional International Equity Fund.
Mr. Mannheim is a graduate of Amherst College and of Massachusetts Institute of
Technology's Sloan School of Management.
LESLIE J. NANBERG is Senior Vice President, Chief Fixed Income Officer and a
member of the portfolio management team of MFS World Asset Allocation Fund. Mr.
Nanberg joined MFS in 1980. He was named Assistant Vice President - Investments
in 1981, Vice President - Investments in 1983, and Senior Vice President in
1986. Mr. Nanberg is a graduate of the University of Illinois, Northwestern
University, and the Northwestern University Graduate School of Management. He is
a Chartered Financial Analyst and is a member of the Boston Security Analysts
Society, Inc., as well as the Financial Analysts Federation.
JAMES T. SWANSON is Senior Vice President of MFS and has been a Portfolio
Manager of the Fund since its inception in July 1994. Mr. Swanson joined MFS in
1985 as Vice President - Investments and was named Senior Vice President in
1989. He is a graduate of Colgate University and the Harvard University Graduate
School of Business Administration.
6
<PAGE> 9
FUND FACTS
<TABLE>
<S> <C>
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: CLASSES A, B AND C: JULY 22, 1994
CLASS I: JANUARY 2, 1997
SIZE: $307.2 MILLION NET ASSETS AS OF FEBRUARY 28, 1997
</TABLE>
PERFORMANCE SUMMARY
Because mutual funds like MFS World Asset Allocation Fund are designed for
investors with long-term goals, we have provided cumulative results as well as
the average annual total returns for Class A, Class B, Class C, and Class I
shares for the applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
<TABLE>
<CAPTION>
Class A Investment Results
(net asset value change including reinvested
distributions) 6 Months 1 Year Life of Fund*
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return +10.61% +13.80% + 43.95%
- ---------------------------------------------------------------------------------------
Average Annual Total Return -- +13.80% + 14.99%
- ---------------------------------------------------------------------------------------
SEC Results -- + 8.40% + 12.86%
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class B Investment Results
(net asset value change including reinvested
distributions) 6 Months 1 Year Life of Fund*
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return +10.29% +13.19% + 41.48%
- ---------------------------------------------------------------------------------------
Average Annual Total Return -- +13.19% + 14.23%
- ---------------------------------------------------------------------------------------
SEC Results -- + 9.19% + 13.29%
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class C Investment Results
(net asset value change including reinvested
distributions) 6 Months 1 Year Life of Fund*
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return +10.33% +13.23% + 41.68%
- ---------------------------------------------------------------------------------------
Average Annual Total Return -- +13.23% + 14.29%
- ---------------------------------------------------------------------------------------
SEC Results -- +12.23% + 14.29%
- ---------------------------------------------------------------------------------------
</TABLE>
*For the period from the commencement of the Fund's investment operations, July
22, 1994 to February 28, 1997.
7
<PAGE> 10
PERFORMANCE SUMMARY - CONTINUED
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES
OF RETURN - CONTINUED
<TABLE>
<CAPTION>
Class I Investment Results
(net asset value change including reinvested
distributions) 6 Months 1 Year Life of Fund*
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return +10.73% +13.93% + 44.11%
- -------------------------------------------------------------------------------------
Average Annual Total Return -- +13.93% + 15.04%
- -------------------------------------------------------------------------------------
SEC Results -- + 8.52% + 12.91%
- -------------------------------------------------------------------------------------
</TABLE>
*For the period from the commencement of the Fund's investment operations, July
22, 1994 to February 28, 1997.
All results represent past performance and are not an indication of future
results. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Class A SEC results include the maximum 4.75% sales charge. Class B SEC 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.
Class I shares, which became available on January 2, 1997, have no sales load or
Rule 12b-1 fees and are only available to certain institutional investors.
Class I share results include the performance and operating expenses (e.g., Rule
12b-1 fees) of Class A shares for periods prior to the commencement of offering
of Class I shares. Because operating expenses attributable to Class A shares are
greater than those of Class I shares, Class I share performance would have been
higher had Class I shares been outstanding during the entire period. The Class A
share performance included in the Class I share performance has been adjusted to
reflect the fact that Class I shares have no initial sales load.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies and
waivers may be discontinued at any time.
8
<PAGE> 11
PORTFOLIO OF INVESTMENTS - FEBRAURY 28, 1997
Stocks - 60.3%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - 44.1%
Australia - 1.5%
Q.B.E. Insurance Group (Insurance) 559,001 $2,801,489
Seven Network Ltd. (Media) 584,900 1,940,523
----------
$4,742,012
- --------------------------------------------------------------------------------------
Canada - 1.3%
Canadian National Railway Co. (Railroads) 110,500 $4,019,438
- --------------------------------------------------------------------------------------
Chile - 0.6%
Chilectra S.A., ADR (Utilities - Electric) 27,900 $1,806,525
- --------------------------------------------------------------------------------------
Finland - 1.4%
Aamulehti Yhtymae OY II (Publishing) 17,400 $ 588,609
Huhtamaki OY (Food Products) 38,600 1,812,710
TT Tieto OY (Computer Software) 22,100 1,895,391
----------
$4,296,710
- --------------------------------------------------------------------------------------
France - 3.2%
Michelin (C.G.D.E.) (Tire and Rubber) 26,700 $1,673,673
Rhone Poulene Rorer (Pharmaceuticals) 39,000 2,769,000
Societe Television Francaise (Broadcast Media) 10,300 955,446
TOTAL S.A., "B" (Oils) 17,500 1,397,356
Union des Assurances Federales S.A.
(Insurance) 24,600 2,951,825
----------
$9,747,300
- --------------------------------------------------------------------------------------
Germany - 2.0%
Adidas AG (Apparel and Textiles) 33,300 $3,187,878
Henkel KGaA, Preferred (Consumer Goods and
Services) 32,000 1,707,171
Volkswagen AG (Automotive) 2,300 1,115,234
----------
$6,010,283
- --------------------------------------------------------------------------------------
Greece - 0.3%
Hellenic Tellecommunication Organization S.A.
(Telecommunications) 47,600 $1,043,662
- --------------------------------------------------------------------------------------
Hong Kong - 2.5%
Asia Satellite Telecommunications Holdings
Ltd., ADR (Telecommunications)* 48,400 $1,270,500
Hong Kong Electric Holdings Ltd.
(Utilities - Electric) 324,000 1,121,396
Hong Kong Land Holdings Ltd. (Real Estate) 435,281 1,240,551
Liu Chong Hing Bank Ltd. (Banks) 798,000 1,514,923
Peregrine Investment Holdings (Finance) 521,000 952,075
Wing Hang Bank Ltd. (Banks) 364,500 1,657,017
----------
$7,756,462
- --------------------------------------------------------------------------------------
Indonesia - 0.3%
PT Semen Gresik (Building Materials) 291,000 $ 859,276
- --------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
PORTFOLIO OF INVESTMENTS - CONTINUED
Stocks - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - continued
Italy - 0.7%
Instituto Nazionale delle Assicurazioni
(Insurance) 383,000 $ 500,811
Telecom Italia Mobile S.p.A., di Risp
(Telecommunications) 907,000 1,387,256
Telecom Italia Mobile S.p.A.
(Telecommunications) 159,000 416,310
-----------
$ 2,304,377
- ---------------------------------------------------------------------------------------
Japan - 8.6%
Bridgestone Corp. (Tire and Rubber) 91,000 $ 1,629,573
Canon, Inc. (Consumer Goods) 134,000 2,799,528
DDI Corp. (Telecommunications) 545 3,284,820
East Japan Railway Co. (Home Construction) 260 1,107,942
Eisai Co. Ltd. (Pharmaceuticals) 59,000 1,105,454
Kinki Coca-Cola Bottling (Beverage) 56,000 673,187
Kirin Beverage Corp. (Beverage) 103,000 1,400,429
Nitto Denko Corp. (Industrial Goods and
Services) 147,000 1,962,112
Omron Corp. (Electronics) 40,000 630,076
Osaka Sanso Kogyo Ltd. (Chemicals) 321,000 862,238
Rohm Co. (Electronics - Semiconductors) 16,000 1,147,405
Sony Corp. (Electronics) 33,000 2,382,937
TDK Corp. (Special Products and Services) 35,000 2,344,552
Takeda Chemical Industries (Chemicals) 141,000 2,828,883
Ushio, Inc. (Electronics) 200,000 2,255,000
-----------
$26,414,136
- ---------------------------------------------------------------------------------------
Malaysia - 0.3%
New Straits Time Press Berhad (Publishing) 126,000 $ 802,091
- ---------------------------------------------------------------------------------------
Netherlands - 1.6%
Ahrend Groep NV (Office Furnishings) 29,000 $ 1,644,509
IHC Caland NV (Transportation Equipment) 24,100 1,342,490
Royal Dutch Petroleum Co. (Oils) 11,500 1,993,405
-----------
$ 4,980,404
- ---------------------------------------------------------------------------------------
New Zealand - 0.6%
Sky City Ltd. (Entertainment) 398,000 $ 1,988,440
- ---------------------------------------------------------------------------------------
Peru - 0.4%
Telefonica del Peru, "B", ADR
(Telecommunications) 53,900 $ 1,185,800
- ---------------------------------------------------------------------------------------
Philippines - 0.5%
Alsons Cement Corp. (Building Materials)*## 3,268,750 $ 845,152
Pilipino Telephone (Telecommunications)* 869,600 562,022
-----------
$ 1,407,174
- ---------------------------------------------------------------------------------------
Portugal - 0.4%
Banco Totta e Acores (Financial Institutions) 75,000 $ 1,115,925
- ---------------------------------------------------------------------------------------
Singapore - 1.0%
Hong Leong Finance (Finance)+ 480,000 $ 1,852,608
Mandarin Oriental International Ltd. (Lodging) 805,000 1,094,800
-----------
$ 2,947,408
- ---------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 13
PORTFOLIO OF INVESTMENTS - CONTINUED
Stocks - continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Issuer Shares Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - continued
South Korea - 1.1%
Korea Electric Power Corp.
(Utilities - Electric) 51,700 $ 1,487,425
Korea Mobile Telecommunications Corp.
(Telecommunications) 1,843 1,799,170
------------
$ 3,286,595
- ----------------------------------------------------------------------------------------
Spain - 1.8%
Acerinox S.A. (Iron and Steel) 17,800 $ 2,475,571
Cubiertas y Mzov S.A. (Engineering and
Construction) 11,200 1,102,562
Repsol S.A. (Oils) 49,500 1,883,505
------------
$ 5,461,638
- ----------------------------------------------------------------------------------------
Sweden - 2.7%
ABB AB, "B" (Electrical Equipment) 12,400 $ 1,385,299
ASTRA AB, Free Shares, "B" (Pharmaceuticals) 71,000 3,318,370
Enator AB (Computer Software)* 11,200 284,846
Nobel Biocare AB (Medical and Health Products) 46,000 820,769
Sparbanken Sverige AB, "A" (Banks) 124,500 2,453,522
------------
$ 8,262,806
- ----------------------------------------------------------------------------------------
Switzerland - 0.7%
Novartis AG (Pharmaceuticals) 2,032 $ 2,323,467
- ----------------------------------------------------------------------------------------
Thailand - 0.3%
Total Access Communication Public Co. Ltd.
(Telecommunications) 136,000 $ 884,000
- ----------------------------------------------------------------------------------------
United Kingdom - 9.9%
ASDA Group PLC (Stores) 1,776,000 $ 3,236,050
British Aerospace PLC (Aerospace) 132,000 2,754,919
British Petroleum Co. PLC (Oils) 198,281 2,198,460
British Petroleum Co. PLC, ADR (Oils) 8,200 1,085,475
Capital Radio PLC (Broadcasting) 76,000 705,098
Carlton Communications PLC (Communications) 189,000 1,608,636
Danka Business Systems PLC, Sponsored, ADR
(Office Equipment) 1,600 67,000
Grand Metropolitan PLC (Food) 231,000 1,702,447
Jarvis Hotels Ltd. PLC (Lodging)+ 395,800 1,142,279
Kwik-Fit Holdings PLC (Retail) 453,000 1,669,260
Lloyds TSB Group PLC (Banks) 241,203 2,005,748
PowerGen PLC (Utilities - Electric) 758,200 7,640,078
Storehouse PLC (Retail) 671,800 3,012,284
Tomkins PLC (Diversified Operations) 362,000 1,682,178
------------
$ 30,509,912
- ----------------------------------------------------------------------------------------
Venezuela - 0.4%
Compania Anonima Nacional Telefonos de
Venezuela, ADR (Telecommunications)* 38,100 $ 1,209,675
- ----------------------------------------------------------------------------------------
Total Foreign Stocks $135,365,516
- ----------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
PORTFOLIO OF INVESTMENTS - CONTINUED
Stocks - continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 16.2%
Aerospace - 0.2%
Allied Signal, Inc. 9,300 $ 671,925
- --------------------------------------------------------------------------------------
Apparel and Textiles - 0.3%
Nike, Inc., "B" 12,900 $ 927,187
- --------------------------------------------------------------------------------------
Automotive - 0.4%
Ford Motor Co. 6,800 $ 223,550
Goodrich (B.F.) Co. 25,100 1,019,687
----------
$1,243,237
- --------------------------------------------------------------------------------------
Banks and Credit Companies - 0.1%
Wells Fargo & Co. 966 $ 293,905
- --------------------------------------------------------------------------------------
Building - 0.2%
Newport News Shipbuilding, Inc. 31,900 $ 494,450
- --------------------------------------------------------------------------------------
Business Machines - 0.3%
Sun Microsystems, Inc.* 21,200 $ 654,550
Texas Instruments, Inc. 4,900 377,912
----------
$1,032,462
- --------------------------------------------------------------------------------------
Business Machines - Peripherals - 0.1%
Seagate Technology, Inc. 4,900 $ 231,525
- --------------------------------------------------------------------------------------
Business Services - 0.5%
ADT Ltd.* 49,100 $1,067,925
Computer Sciences, Inc.* 4,450 300,375
----------
$1,368,300
- --------------------------------------------------------------------------------------
Cellular Telephones - 0.3%
Telephone & Data Systems, Inc. 24,700 $ 988,000
- --------------------------------------------------------------------------------------
Chemicals - 0.4%
Betzdearborn, Inc. 3,200 $ 207,600
du Pont (E.I.) de Nemours & Co., Inc. 8,200 879,450
----------
$1,087,050
- --------------------------------------------------------------------------------------
Computer Software - Systems - 1.2%
BMC Software, Inc. 6,900 $ 295,406
Computer Associates International, Inc. 4,600 200,100
Oracle Systems Corp.* 37,000 1,452,250
Sybase, Inc.* 101,600 1,663,700
----------
$3,611,456
- --------------------------------------------------------------------------------------
Consumer Goods and Services - 1.5%
Colgate Palmolive Co. 6,300 $ 652,050
Philip Morris Cos., Inc. 13,100 1,770,137
Tyco International Ltd. 33,000 1,947,000
UST, Inc. 11,700 361,238
----------
$4,730,425
- --------------------------------------------------------------------------------------
Containers - 0.1%
Stone Container Corp. 19,600 $ 254,800
- --------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
PORTFOLIO OF INVESTMENTS - CONTINUED
Stocks - continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Electronics - 0.3%
Atmel Corp.* 8,400 $ 313,950
Intel Corp. 3,400 482,375
Kulicke & Soffa Industries, Inc.* 7,700 204,050
----------
$1,000,375
- --------------------------------------------------------------------------------------
Entertainment - 1.2%
Chancellor Broadcasting Co., "A"* 700 $ 19,075
Clear Channel Communications, Inc.* 16,900 809,088
Harrah's Entertainment, Inc.* 95,900 1,774,150
LIN Television Corp.* 28,000 1,162,000
----------
$3,764,313
- --------------------------------------------------------------------------------------
Financial Institutions - 0.7%
Federal Home Loan Mortgage Corp. 26,000 $ 773,500
Union Planters Corp. 27,100 1,212,725
----------
$1,986,225
- --------------------------------------------------------------------------------------
Food and Beverage Products - 0.5%
PepsiCo, Inc. 47,100 $1,548,412
- --------------------------------------------------------------------------------------
Forest and Paper Products - 0.3%
Kimberly Clark Corp. 6,600 $ 699,600
Unisource Worldwide, Inc. 9,850 211,775
----------
$ 911,375
- --------------------------------------------------------------------------------------
Insurance - 1.0%
Chubb Corp. 13,300 $ 779,712
CIGNA Corp. 4,400 672,650
ITT Hartford Insurance Group, Inc. 7,400 555,000
Penncorp Financial Group, Inc. 32,600 1,141,000
----------
$3,148,362
- --------------------------------------------------------------------------------------
Machinery - 0.2%
Stewart & Stevenson Services, Inc. 21,500 $ 561,688
- --------------------------------------------------------------------------------------
Medical and Health Products - 0.9%
Bristol Myers Squibb Co. 4,200 $ 548,100
Pharmacia & Upjohn 61,400 2,264,125
----------
$2,812,225
- --------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.6%
AmeriSource Health Corp.* 2,400 $ 120,900
PacifiCare Health Systems, Inc., "B"* 7,000 586,250
St. Jude Medical, Inc. 28,500 1,125,750
----------
$1,832,900
- --------------------------------------------------------------------------------------
Oil Services - 0.1%
Tidewater, Inc. 10,500 $ 412,800
- --------------------------------------------------------------------------------------
Oils - 0.5%
Mobil Corp. 6,900 $ 846,975
Texaco, Inc. 7,500 741,562
----------
$1,588,537
- --------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
PORTFOLIO OF INVESTMENTS - CONTINUED
Stocks - continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Issuer Shares Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Photographic Products - 0.4%
Eastman Kodak Co. 13,600 $ 1,218,900
- ----------------------------------------------------------------------------------------
Railroads - 0.4%
Burlington Northern Santa Fe 11,300 $ 940,725
Wisconsin Central Transportation Corp.* 11,200 401,800
------------
$ 1,342,525
- ----------------------------------------------------------------------------------------
Restaurants and Lodging - 1.0%
Hilton Hotels Corp. 39,200 $ 984,900
Host Marriott Corp. 55,500 999,000
Promus Hotel Corp.* 32,900 1,163,838
Renaissance Hotel Group NV* 1,400 41,475
------------
$ 3,189,213
- ----------------------------------------------------------------------------------------
Stores - 0.5%
Rite Aid Corp. 32,600 $ 1,373,275
- ----------------------------------------------------------------------------------------
Supermarkets - 0.5%
Vons Cos., Inc.* 23,200 $ 1,580,500
- ----------------------------------------------------------------------------------------
Telecommunications - 0.4%
Cabletron Systems, Inc.* 20,800 $ 624,000
Cellular Communications International, Inc.* 5,800 163,850
Lucent Technologies, Inc. 6,100 328,638
------------
$ 1,116,488
- ----------------------------------------------------------------------------------------
Utilities - Electric - 0.4%
CMS Energy Corp. 13,200 $ 432,300
Illinova Corp. 33,500 837,500
------------
$ 1,269,800
- ----------------------------------------------------------------------------------------
Utilities - Telephone - 0.7%
MCI Communications Corp. 61,300 $ 2,191,475
- ----------------------------------------------------------------------------------------
Total U.S. Stocks $ 49,784,110
- ----------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $166,667,330) $185,149,626
- ----------------------------------------------------------------------------------------
Preferred Stock - 0.4%
- ----------------------------------------------------------------------------------------
Entertainment
Time Warner, Inc., "K", 10.25% (Identified
Cost, $1,094,375) 1,026 $ 1,138,444
- ----------------------------------------------------------------------------------------
Rights
- -----------------------------------------------------------------------------------------
Switzerland
Ciba Geigy (Specialty Chemical) (Identified
Cost, $13,891) 2,032 $ 128,645
- ----------------------------------------------------------------------------------------
Warrants
- ----------------------------------------------------------------------------------------
Hong Kong
Peregrine Investment Holdings (Identified
Cost, $0) 46,800 $ 16,168
- ----------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
PORTFOLIO OF INVESTMENTS - CONTINUED
Bonds - 19.5%
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Bonds - 11.3%
Greece - 0.3%
Hellenic Republic, 12.6s, 2003 GRD 116,500 $ 456,699
Hellenic Republic, 13.4s, 2003 30,000 117,548
Hellenic Republic, 14.8s, 2003 90,000 353,155
-----------
$ 927,402
- ---------------------------------------------------------------------------------------
Mexico - 0.3%
United Mexican States, Floating Rate, 2001+ $ 1,000 $ 1,010,000
- ---------------------------------------------------------------------------------------
United Kingdom - 10.7%
United Kingdom Treasury, 6.75s, 2004 GBP 20,530 $32,731,373
- ---------------------------------------------------------------------------------------
Total Foreign Bonds $34,668,775
- ---------------------------------------------------------------------------------------
High-Yield Bonds - 8.2%
Aerospace - 0.4%
BE Aerospace, Inc., 9.875s, 2006 $ 1,250 $ 1,312,500
- ---------------------------------------------------------------------------------------
Automotive - 0.7%
Exide Corp., 2.9s, 2005## $ 1,600 $ 962,000
SPX Corp., 11.75s, 2002 1,000 1,100,000
-----------
$ 2,062,000
- ---------------------------------------------------------------------------------------
Building - 1.0%
American Standard, Inc., 0s, 2005 $ 750 $ 716,250
Building Materials Corp., 0s, 2004 1,525 1,351,531
Nortek, Inc., 9.875s, 2004 1,000 1,030,000
-----------
$ 3,097,781
- ---------------------------------------------------------------------------------------
Cellular Telephones - 0.3%
Rogers Cantel, Inc., 9.375s, 2008 $ 750 $ 795,000
- ---------------------------------------------------------------------------------------
Chemicals - 0.3%
NL Industries, Inc., 11.75s, 2003 $ 750 $ 815,625
- ---------------------------------------------------------------------------------------
Consumer Goods and Services - 1.3%
E&S Holdings Corp., 10.375s, 2006 $ 800 $ 844,000
FoodBrands America, Inc., 10.75s, 2006 750 795,000
Revlon, Inc., 10.5s, 2003 800 856,000
Sealy Corp., 9.5s, 2003 1,000 1,020,000
Westpoint Stevens, Inc., 9.375s, 2005 500 527,500
-----------
$ 4,042,500
- ---------------------------------------------------------------------------------------
Containers - 0.7%
Owens-Illinois, Inc., 11s, 2003 $ 800 $ 894,000
Silgan Corp., 11.75s, 2002 1,250 1,337,500
-----------
$ 2,231,500
- ---------------------------------------------------------------------------------------
Entertainment - 0.3%
Cinemark USA, Inc., 9.625s, 2008 $ 1,000 $ 1,030,000
- ---------------------------------------------------------------------------------------
Machinery - 0.2%
AGCO Corp., 8.5s, 2006 $ 750 $ 770,625
- ---------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.3%
Tenet Healthcare Corp., 10.125s, 2005 $ 800 $ 883,000
- ---------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
PORTFOLIO OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
Bonds - continued
- ---------------------------------------------------------------------------------------
Principal Amount
(000 Omitted) Value
Issuer
- ---------------------------------------------------------------------------------------
<S> <C> <C>
High-Yield Bonds - continued
Oils - 0.2%
Gulf Canada Resources Ltd., 9.25s, 2004 $ 500 $ 533,750
- ---------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Red Roof Inns, Inc., 9.625s, 2003 $ 250 $ 252,500
- ---------------------------------------------------------------------------------------
Special Products and Services - 0.2%
IMO Industries, Inc., 11.75s, 2006 $ 750 $ 744,375
- ---------------------------------------------------------------------------------------
Steel - 1.3%
AK Steel Corp., 9.125s, 2006##+ $ 1,000 $ 1,037,500
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 2,000 2,060,000
WCI Steel, Inc., 10s, 2004##+ 750 787,500
-----------
$ 3,885,000
- ---------------------------------------------------------------------------------------
Supermarkets - 0.9%
Grand Union Co., 12s, 2004 $ 750 $ 768,750
Jitney-Jungle Stores, 12s, 2006 1,000 1,110,000
Ralph's Grocery Co., 10.45s, 2004 800 852,000
-----------
$ 2,730,750
- ---------------------------------------------------------------------------------------
Total High-Yield Bonds $25,186,906
- ---------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $59,502,393) $59,855,681
- ---------------------------------------------------------------------------------------
Short-Term Obligations - 27.9%
- ---------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due
3/04/97 - 3/14/97 $51,275 $51,211,635
Federal National Mortgage Assn., due
3/07/97 - 3/27/97 16,000 15,968,870
General Electric Capital Corp., due
3/03/97 - 3/06/97 13,040 13,033,462
Philip Morris Cos., Inc., due 3/11/97 5,685 5,676,709
- ---------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $85,890,676
- ---------------------------------------------------------------------------------------
Call Options Purchased - 0.1%
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Canadian Dollars
August/1.350 CAD 31,588 $75,811
Deutsche Marks
March/1.655 DEM 51,520 90,826
- ----------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid,
$177,439) $ 166,637
- ----------------------------------------------------------------------------------------
Total Investments (Identified Cost, $313,346,104) $332,345,877
- ----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
PORTFOLIO OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
Call Options Written - (0.1)%
- ----------------------------------------------------------------------------------------
Principal Amount
of Contracts
(000 Omitted) Value
Description/Expiration Month/Strike Price
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Australian Dollars
May/0.755 AUD 7,547 $ (31,833)
Japanese Yen
June/118 JPY 1,837,968 (271,022)
- ----------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received,
$322,000) $ (302,855)
- ----------------------------------------------------------------------------------------
Put Options Written - (0.1)%
- ----------------------------------------------------------------------------------------
Deutsche Marks
March/1.700 (Premium Received, $88,720) DEM 52,920 $ (176,663)
- ----------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (8.0)% $(24,662,285)
- ----------------------------------------------------------------------------------------
Net Assets - 100.0% $307,204,074
- ----------------------------------------------------------------------------------------
</TABLE>
*Non-income producing security.
##SEC Rule 144A restriction.
+Restricted security.
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
<TABLE>
<S> <C> <C> <C> <C> <C>
AUD = Australian Dollars GRD = Greek Drachmas
BEF = Belgian Francs HKD = Hong Kong Dollars
CAD = Canadian Dollars IDR = Indonesian Rupiahs
CHF = Swiss Francs IEP = Irish Punts
DEM = Deutsche Marks ITL = Italian Lire
DKK = Danish Kroner JPY = Japanese Yen
ECU = European Currency Units NOK = Norwegian Krone
ESP = Spanish Pesetas NZD = New Zealand Dollars
FIM = Finnish Markkaa PHP = Phillipine Pesos
FRF = French Francs SEK = Swedish Kronor
GBP = British Pounds THB = Thai Bahts
</TABLE>
See notes to financial statements
17
<PAGE> 20
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
February 28, 1997
- ---------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $313,346,104) $332,345,877
Cash 9,450
Net receivable for forward foreign currency contracts sold 7,111,949
Net receivable for forward foreign currency contracts 2,225,376
Premium receivable on options written 271,022
Receivable for Fund shares sold 917,107
Receivable for investments sold 4,232,630
Interest and dividends receivable 1,453,201
Deferred organization expenses 20,567
Other assets 2,025
------------
Total assets $348,589,204
============
Liabilities:
Payable for Fund shares reacquired $ 375,881
Payable for investments purchased 34,271,137
Written options outstanding, at value (premiums received,
$410,720) 479,518
Net payable for forward foreign currency exchange contracts
purchased 5,907,394
Payable to affiliates -
Management fee 3,456
Shareholder servicing agent fee 1,105
Distribution fee 226,702
Accrued expenses and other liabilities 119,937
------------
Total liabilities $ 41,385,130
============
Net assets $307,204,074
============
Net assets consist of:
Paid-in capital $274,645,197
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 22,242,655
Accumulated undistributed net realized gain
on investments and foreign currency transactions 8,546,979
Accumulated undistributed net investment income 1,769,243
------------
Total $307,204,074
============
Shares of beneficial interest outstanding 16,967,549
============
Class A shares:
Net asset value per share
(net assets of $101,902,806 / 5,616,983 shares of beneficial
interest outstanding) $18.14
======
Offering price per share (100/95.25 of net asset value per share) $19.04
======
Class B shares:
Net asset value and offering price per share
(net assets of $152,760,288 / 8,442,209 shares of beneficial
interest outstanding) $18.09
======
Class C shares:
Net asset value and offering price per share
(net assets of $52,540,877 / 2,908,351 shares of beneficial
interest outstanding) $18.07
======
Class I shares:
Net asset value per share
(net assets of $102.71 / 5.656 shares of beneficial
interest outstanding) $18.16
======
</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
Statement of Operations
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Six Months Ended February 28, 1997
- ---------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Interest $ 3,480,768
Dividends 1,481,778
Foreign taxes withheld (153,855)
-----------
Total investment income $ 4,808,691
-----------
Expenses -
Management fee $ 828,736
Trustees' compensation 20,692
Shareholder servicing agent fee (Common) 63,207
Shareholder servicing agent fee (Class A) 46,165
Shareholder servicing agent fee (Class B) 99,975
Shareholder servicing agent fee (Class C) 20,333
Distribution and service fee (Class A) 234,199
Distribution and service fee (Class B) 697,434
Distribution and service fee (Class C) 215,576
Custodian fee 91,760
Printing 33,488
Postage 30,629
Auditing fees 26,064
Legal fees 4,055
Amortization of organization expenses 3,434
Miscellaneous 81,340
-----------
Total expenses $ 2,497,087
Fees paid indirectly (8,646)
Preliminary reduction of expenses by distributor (Class A) (24,649)
-----------
Net expenses $ 2,463,792
-----------
Net investment income $ 2,344,899
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss)(identified cost basis) -
Investment transactions and swap agreements $10,261,591
Written option transactions 283,515
Foreign currency transactions (641,703)
-----------
Net realized gain on investments and foreign currency
transactions $ 9,903,403
-----------
Change in unrealized appreciation (depreciation) -
Investments $10,699,674
Written options (115,529)
Translation of assets and liabilities in foreign currencies 4,503,844
-----------
Net unrealized gain on investments and foreign currency
translation $15,087,989
-----------
Net realized and unrealized gain on investments and foreign
currency $24,991,392
-----------
Increase in net assets from operations $27,336,291
===========
</TABLE>
See notes to financial statements
19
<PAGE> 22
FINANCIAL STATEMENTS - CONTINUED
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Six Months
Ended Year Ended
February 28, August 31,
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income $ 2,344,899 $ 4,164,411
Net realized gain on investments and
foreign currency transactions 9,903,403 21,499,473
Net unrealized gain (loss) on investments and
foreign currency translation 15,087,989 (1,720,591)
------------ ------------
Increase in net assets from operations $ 27,336,291 $ 23,943,293
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (919,995) $ (2,008,957)
From net investment income (Class B) (948,220) (2,218,582)
From net investment income (Class C) (320,648) (565,751)
From net realized gain on investments and
foreign currency transactions (Class A) (5,984,887) (2,800,463)
From net realized gain on investments and
foreign currency transactions (Class B) (9,094,426) (4,012,442)
From net realized gain on investments and
foreign currency transactions (Class C) (2,927,638) (929,505)
------------ ------------
Total distributions declared to shareholders $(20,195,814) $(12,535,700)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 82,397,437 $ 91,720,629
Net asset value of shares issued to shareholders
in reinvestment of distributions 17,481,195 10,664,692
Cost of shares reacquired (43,953,614) (31,243,387)
------------ ------------
Increase in net assets from
Fund share transactions $ 55,925,018 $ 71,141,934
------------ ------------
Total increase in net assets $ 63,065,495 $ 82,549,527
Net assets:
At beginning of period 244,138,579 161,589,052
------------ ------------
At end of period (including accumulated
undistributed
net investment income of $1,769,243 and
$1,613,207, respectively) $307,204,074 $244,138,579
------------ ------------
</TABLE>
See notes to financial statements
20
<PAGE> 23
FINANCIAL STATEMENTS - CONTINUED
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended August 31,
February 28, ---------------------------
1997 1996 1995 1994*
- -------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 17.68 $ 16.63 $ 15.33 $ 15.00
-------- ------- ------- -------
Income from investment operations# -
Net investment incomesec. $ 0.18 $ 0.43 $ 0.55 $ 0.04
Net realized and unrealized gain on
investments and foreign currency
transactions 1.64 1.85 1.17 0.29
-------- ------- ------- -------
Total from investment operations $ 1.82 $ 2.28 $ 1.72 $ 0.33
-------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income $ (0.18) $ (0.49) $ (0.37) $ --
From net realized gain on investments and
foreign currency transactions (1.18) (0.74) (0.05) --
-------- ------- ------- -------
Total distributions declared to
shareholders $ (1.36) $ (1.23) $ (0.42) $ --
-------- ------- ------- -------
Net asset value - end of period $ 18.14 $ 17.68 $ 16.63 $ 15.33
-------- ------- ------- -------
Total return++ 10.61%++ 14.23% 11.48% 2.20%++
Ratios (to average net assets)/Supplemental
datasec.:
Expenses## 1.39%+ 1.48% 1.47% 1.50%+
Net investment income 2.08%+ 2.45% 3.49% 2.43%+
Portfolio turnover 87% 202% 118% 1%
Average commission rate### $ 0.0284 $0.0219 -- --
Net assets at end of period (000 omitted) $101,903 $86,457 $58,663 $25,254
* 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.
sec. 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:
Net investment income $ 0.18 $ 0.42 $ 0.52 $ 0.02
Ratios (to average net assets):
Expenses## 1.44%+ 1.53% 1.67% 2.62%+
Net investment income 2.03%+ 2.40% 3.29% 1.31%+
</TABLE>
See notes to financial statements
21
<PAGE> 24
FINANCIAL STATEMENTS - CONTINUED
Financial Highlights - continued
<TABLE>
- -------------------------------------------------------------------------------------
<CAPTION>
Six Months
Ended Year Ended August 31,
February 28, ----------------------------
1997 1996 1995 1994*
- -------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 17.63 $ 16.58 $ 15.31 $ 15.00
-------- ------- ------- -------
Income from investment operations# -
Net investment incomesec. $ 0.13 $ 0.32 $ 0.43 $ 0.02
Net realized and unrealized gain on
investments and foreign currency
transactions 1.64 1.85 1.17 0.29
-------- ------- ------- -------
Total from investment operations $ 1.77 $ 2.17 $ 1.60 $ 0.31
-------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income $ (0.13) $ (0.38) $ (0.28) $ --
From net realized gain on investments and
foreign currency transactions (1.18) (0.74) (0.05) --
-------- ------- ------- -------
Total distributions declared to
shareholders $ (1.31) $ (1.12) $ (0.33) $ --
-------- ------- ------- -------
Net asset value - end of period $ 18.09 $ 17.63 $ 16.58 $ 15.31
-------- ------- ------- -------
Total return 10.29%++ 13.58% 10.65% 2.07%++
Ratios (to average net assets)/Supplemental
datasec.:
Expenses## 1.99%+ 2.10% 2.24%+ 2.57%+
Net investment income 1.50%+ 1.83% 2.75%+ 1.39%+
Portfolio turnover 87% 202% 118% 1%
Average commission rate### $ 0.0284 $ 0.0219 -- --
Net assets at end of period (000 omitted) $152,760 $124,399 $83,601 $26,495
*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.
sec.The investment adviser voluntarily waived a portion of its management fee
for certain of the periods indicated. If this fee had been incurred by the
Fund, the net investment income per share and the ratios would have been:
Net investment income -- -- -- $ 0.01
Ratios (to average net assets):
Expenses## -- -- -- 3.21%+
Net investment income -- -- -- 0.75%+
</TABLE>
See notes to financial statements
22
<PAGE> 25
FINANCIAL STATEMENTS - CONTINUED
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended August 31,
February 28, ----------------------------
1997 1996 1995 1994*
- ------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 17.62 $ 16.58 $ 15.31 $ 15.00
------- ------- ------- -------
Income from investment operations# -
Net investment incomesec. $ 0.13 $ 0.33 $ 0.46 $ 0.03
Net realized and unrealized gain on
investments and foreign currency
transactions 1.64 1.85 1.16 0.28
------- ------- ------- -------
Total from investment operations $ 1.77 $ 2.18 $ 1.62 $ 0.31
------- ------- ------- -------
Less distributions declared to
shareholders -
From net investment income $ (0.14) $ (0.40) $ (0.30) $ --
From net realized gain on investments and
foreign currency transactions (1.18) (0.74) (0.05) --
------- ------- ------- -------
Total distributions declared to
shareholders $ (1.32) $ (1.14) $ (0.35) $ --
------- ------- ------- -------
Net asset value - end of period $ 18.07 $ 17.62 $ 16.58 $ 15.31
------- ------- ------- -------
Total return 10.33%++ 13.62% 10.72% 2.07%++
Ratios (to average net assets)/Supplemental
datasec.:
Expenses## 1.96%+ 2.03% 2.18%+ 2.50%+
Net investment income 1.53%+ 1.89% 2.91%+ 1.68%+
Portfolio turnover 87% 202% 118% 1%
Average commission rate### $0.0284 $0.0219 -- --
Net assets at end of period (000 omitted) $52,541 $33,283 $19,325 $ 3,435
* 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.
sec. The investment adviser voluntarily waived a portion of its management fee
for certain of the periods indicated. If this fee 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
23
<PAGE> 26
FINANCIAL STATEMENTS - CONTINUED
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended
February 28, 1997*
- --------------------------------------------------------------------------------
Class I
- --------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 17.56
-------
Income from investment operations# -
Net investment income $ 0.17
Net realized and unrealized gain on investments and foreign
currency transactions 0.43
-------
Total from investment operations $ 0.60
-------
Net asset value - end of period $ 18.16
-------
Total return 3.42%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.94%+
Net investment income 2.34%+
Portfolio turnover 87%
Average commission rate $0.0284
Net assets at end of period $ 103
* For the period from the commencement of offering of Class I shares, January
2, 1997 to February 28, 1997.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
</TABLE>
See notes to financial statements
24
<PAGE> 27
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 the effects of changes
in each country's legal, political and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are 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
25
<PAGE> 28
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 or 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
26
<PAGE> 29
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 the 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
27
<PAGE> 30
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 additions to the cost basis
of the security. Costs that are incurred to negotiate the terms or conditions of
capital infusions or that are expected to result in a plan of reorganization are
reported as realized losses. Ongoing costs incurred to protect or enhance an
investment, or costs incurred to pursue other claims or legal actions, are
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 State Street Bank, 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 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.
28
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, Class C and Class I shares. The four classes of shares differ in their
respective 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 $13,196 for the period ended
February 28, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$47,964 for the period ended February 28, 1997, as its portion of the sales
charge on sales of Class A shares of the Fund. The Trustees have adopted a
separate distribution plan for Class A, Class B and Class C shares pursuant to
Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.50% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with MFD of up to 0.25% per annum of
the Fund's average daily net assets attributable to Class A shares which are
attributable to that securities dealer, a distribution fee to MFD of up to 0.25%
per annum of the Fund's average daily net assets attributable to Class A shares,
commissions to dealers and payments to MFD wholesalers for sales at or above a
certain dollar level, and other such distribution-related expenses that are
approved by the Fund. MFD retains the service fee for accounts not attributable
to a securities dealer which amounted to $14,762 for the period ended February
28, 1997. MFD waived a portion of its fee, which is reflected as a preliminary
reduction of expenses on the Statement of Operations. Fees, net of waiver,
incurred under the distribution plan during the
29
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS - CONTINUED
period ended February 28, 1997 were 0.45% of average daily net assets
attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be 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 $11,779 and $57 for Class B and Class C shares, respectively,
for the period ended February 28, 1997. Fees incurred under the distribution
plan during the period ended February 28, 1997 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 12 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 12 months of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the period ended February 28, 1997 were
$2,424, $99,980 and $4,346 for Class A, Class B and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.13%. Prior to January 1, 1997, the fee was calculated as a percentage of the
average daily net assets of each class of shares at an effective annual rate of
up to 0.15%, up to 0.22% and up to 0.15% attributable to Class A, Class B and
Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
- -----------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities $ 27,947,500 $ 28,061,250
------------ ------------
Investments (non-U.S. government securities) $204,880,273 $161,090,947
------------ ------------
</TABLE>
30
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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:
<TABLE>
<S> <C>
Aggregate cost $313,346,104
------------
Gross unrealized appreciation $ 25,508,832
Gross unrealized depreciation (6,509,059)
------------
Net unrealized appreciation $ 18,999,773
------------
</TABLE>
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Class A Shares
<TABLE>
<CAPTION>
Period Ended Year Ended
February 28, 1997 August 31, 1996
------------------------- ------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,013,853 $ 36,512,954 1,942,820 $ 34,004,181
Shares issued to shareholders in
reinvestment of distributions 361,083 6,330,133 250,334 4,239,097
Shares reacquired (1,647,617) (30,016,389) (830,481) (14,577,459)
---------- ------------ --------- ------------
Net increase 727,319 $ 12,826,698 1,362,673 $ 23,665,819
========== ============ ========= ============
</TABLE>
Class B Shares
<TABLE>
<CAPTION>
Period Ended Year Ended
February 28, 1997 August 31, 1996
------------------------- ------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,508,200 $ 27,272,183 2,433,897 $ 42,393,057
Shares issued to shareholders in
reinvestment of distributions 486,350 8,500,794 308,270 5,200,860
Shares reacquired (606,597) (10,996,261) (728,702) (12,706,594)
--------- ------------ --------- ------------
Net increase 1,387,953 $ 24,776,716 2,013,465 $ 34,887,323
========= ============ ========= ============
</TABLE>
Class C Shares
<TABLE>
<CAPTION>
Period Ended Year Ended
February 28, 1997 August 31, 1996
------------------------- ------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,029,885 $ 18,612,200 877,452 $ 15,323,391
Shares issued to shareholders in
reinvestment of distributions 151,798 2,650,268 72,545 1,224,735
Shares reacquired (162,411) (2,940,964) (226,844) (3,959,334)
--------- ------------ -------- ------------
Net increase 1,019,272 $ 18,321,504 723,153 $ 12,588,792
========= ============ ======== ============
</TABLE>
31
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Class I Shares
<TABLE>
<CAPTION>
Period Ended
February 28, 1997*
-------------------
Shares Amount
- ---------------------------------------------------------
<S> <C> <C>
Shares sold 6 $100
Shares issued to shareholders in
reinvestment of distributions -- --
Shares reacquired -- --
-- ----
Net increase 6 $100
== ====
</TABLE>
* For the period from the commencement of offering of Class I shares, January 2,
1997 to February 28, 1997.
(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 $400 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 period ended February
28, 1997 was $1,425.
32
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(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 February 28, 1997, is as
follows:
Written Option Transactions
<TABLE>
<CAPTION>
1997 Calls 1997 Puts
---------------------------- ----------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period -
Japanese Yen -- $ -- 681,000 $ 55,463
Options written -
Australian Dollars 7,547 50,977 -- --
Deutsche Marks -- -- 52,920 88,720
Japanese Yen 2,040,968 285,657 1,472,000 130,559
Swiss Francs/Deutsche
Marks 19,902 134,220 -- --
Options terminated in closing
transactions -
Japanese Yen (203,000) (14,634) (2,153,000) (186,022)
Swiss Francs/Deutsche
Marks (19,902) (134,220) -- --
--------- --------- ---------- ---------
Outstanding, end of period 1,845,515 $ 322,000 52,920 $ 88,720
========= ========= ========== =========
Options outstanding at end of period
consist of -
Australian Dollars 7,547 $ 50,977 -- $ --
Deutsche Marks -- -- 52,920 88,720
Japanese Yen 1,837,968 271,023 -- --
--------- --------- ---------- ---------
Outstanding, end of period 1,845,515 $ 322,000 52,920 $ 88,720
========= ========= ========== =========
</TABLE>
At February 28, 1997, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
33
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Contracts Net Unrealized
Settlement to Deliver/ Contracts Appreciation
Date Receive In Exchange for at Value (Depreciation)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales
4/21/97 -
6/30/97 AUD 41,681,132 $32,273,961 $ 32,351,477 $ (77,516)
6/30/97 BEF 45,622,790 1,418,707 1,320,862 97,845
5/30/97 -
8/26/97 CAD 27,286,025 20,275,302 20,093,348 181,954
4/21/97 -
5/30/97 CHF 28,307,248 20,594,374 19,360,325 1,234,049
4/21/97 -
6/30/97 DEM 117,682,583 72,712,943 70,066,093 2,646,850
6/30/97 DKK 6,258 1,043 979 64
1/15/98 ECU 630,046 782,734 716,205 66,529
4/21/97 ESP 748,629,549 5,507,160 5,221,188 285,972
5/30/97 FIM 27,608,351 5,899,548 5,528,480 371,068
6/30/97 FRF 41,340,569 7,613,364 7,318,659 294,705
4/21/97 -
6/30/97 GBP 43,677,202 71,464,023 71,067,226 396,797
3/03/97 GRD 4,702,020 17,812 16,998 814
12/04/97 HKD 13,267,240 1,712,344 1,711,444 900
4/28/97 -
6/30/97 ITL 30,102,983,307 18,588,925 17,718,958 869,967
3/03/97 -
5/30/97 JPY 1,942,754,994 16,288,018 16,310,068 (22,050)
4/21/97 NZD 4,800,000 3,310,752 3,319,552 (8,800)
3/05/97 PHP 384,693 14,572 14,620 (48)
3/04/97 -
6/30/97 SEK 89,456,996 12,736,858 11,964,009 772,849
------------ ------------ ----------
$291,212,440 $284,100,491 $7,111,949
============ ============ ==========
</TABLE>
34
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
Contracts Net Unrealized
Settlement to Deliver/ Contracts Appreciation
Date Receive In Exchange for at Value (Depreciation)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases
4/21/97 -
6/30/97 AUD 29,996,547 $23,399,977 $ 23,285,862 $ (114,115)
6/30/97 BEF 49,936,707 1,449,962 1,445,757 (4,205)
5/30/97 CAD 3,964,344 2,941,890 2,915,854 (26,036)
4/21/97 CHF 8,735,756 6,586,909 5,957,346 (629,563)
4/21/97 -
8/26/97 DEM 141,999,213 88,330,094 84,695,031 (3,635,063)
8/26/97 ECU 402,325 468,548 465,691 (2,857)
4/21/97 -
8/26/97 ESP 1,103,822,572 7,787,598 7,694,897 (92,701)
3/04/97 -
6/30/97 FRF 8,133,184 1,441,882 1,438,530 (3,352)
3/04/97 -
6/30/97 GBP 33,714,239 51,710,127 51,681,732 (28,395)
3/04/97 IDR 37,197,750 15,567 15,517 (50)
6/30/97 IEP 890,598 1,414,180 1,409,526 (4,654)
4/28/97 -
5/30/97 ITL 49,853,724,117 30,792,675 29,366,153 (1,426,522)
6/30/97 JPY 1,199,689,205 9,951,756 10,122,830 171,074
8/26/97 NOK 1,561,196 236,796 234,080 (2,716)
6/30/97 SEK 6,650,357 901,132 889,450 (11,682)
6/17/97 THB 305,397,910 11,743,815 11,647,258 (96,557)
------------ ------------ -----------
$239,172,908 $233,265,514 $(5,907,394)
============ ============ ===========
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts excluded from above
amounted to a net payable of $354,634 with Bankers Trust, $198,968 with Goldman
Sachs, $330,279 with J.P. Morgan and a net receivable of $953,990 with C.S.
First Boston, $311,085 with Deutsche Bank, $380,626 with Merrill Lynch and
$1,463,556 with Swiss Bank at February 28, 1997.
At February 28, 1997, 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 February 28, 1997,
the Fund owned the following restricted securities (constituting 1.90% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The value of these securities is determined by a valuation
supplied by a pricing service or brokers.
35
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
Date of Share/
Description Acquisition Par Amount Cost Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AK Steel Corp., 9.125s, 2006 12/17/96 1,000,000 $1,027,500 $1,037,500
Hong Leong Finance 6/12/95 - 8/02/96 480,000 1,667,956 1,852,608
Jarvis Hotels Ltd. PLC 7/02/96 - 8/02/96 395,800 1,021,539 1,142,279
United Mexican States,
Floating Rate, 2001 7/28/96 1,000,000 995,000 1,010,000
WCI Steel, Inc., 10s, 2004 11/27/96 750,000 783,750 787,500
----------
$5,829,887
----------
</TABLE>
36
<PAGE> 39
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust I and Shareholders of
MFS World Asset Allocation Fund:
We have audited the accompanying statement of assets and liabilities of MFS
World Asset Allocation Fund (one of the portfolios constituting the MFS Series
Trust I) including the schedule of portfolio investments, as of February 28,
1997, and the related statement of operations for the six month period ended
February 28, 1997, and the statement of changes in net assets for the six month
period ended February 28, 1997 and for the year ended August 31, 1996, and the
financial highlights for the six month period ended February 28, 1997, the years
ended August 31, 1996 and 1995, and for the period from July 22, 1994
(commencement of investment operations) to August 31, 1994. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1997, 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 February 28, 1997, the results of its operations
for the six month period ended February 28, 1997, and the changes in its net
assets for the six month period ended February 28, 1997 and the year ended
August 31, 1996, and the financial highlights for the six month period ended
February 28, 1997, the years ended August 31, 1996 and 1995, and for the period
from July 22, 1994 (commencement of investment operations) to August 31, 1994,
in conformity with generally accepted accounting principles.
Boston, Massachusetts
March 31, 1997 /s/ Ernst & Young LLP
------------------------------------------------------------------
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.
37
<PAGE> 40
MFS(R) WORLD [DALBAR #1 MFS GRAPHIC OMITTED]
ASSET ALLOCATION ----------------------
FUND(SM) BULK RATE
500 Boylston Street U.S. POSTAGE
Boston, MA 02116-3741 PAID
[MFS LOGO] PERMIT #55638
INVESTMENT MANAGEMENT BOSTON, MA
We invented the mutual fund(SM) ----------------------
(C)1997 MFS Fund Distributors, Inc., MAA-3 4/97 32 M 88/288/388
500 Boylston Street, Boston, MA 02116-3741
<PAGE> 41
INTRODUCING A QUICK AND EASY WAY TO LEARN SOME FINANCIAL BASICS:
[LOGO: The ABCs of Investing]
[LOGO: part of MFS(R) Heritage Planning(SM)]
[GRAPHIC OMITTED: 2 PEOPLE JUGGLING BLOCKS]
This series of brief messages provides an overview of investment topics,
including:
* Dollar-cost Averaging: a simple method of investing that could work for
anyone
* Interest Rate Changes: what every fixed-income investor should know
* Lump-sum Rollovers: how to handle a windfall
* Professional Financial Advisers: why even smart investors may need one
* Straw into Gold: tips for weaving small lifestyle changes into dollars to
invest
* Weathering Market Downturns: how to maintain perspective
* Basic Steps Smart Investors Take Automatically
The series will include messages on other topics as they become available.
You can read through each topic quickly - in five minutes at most. Of course,
these materials are not designed to turn you into an expert. Your financial
adviser can provide more information on any of the ABC subjects. A
conversation with your adviser might also provide an opportune occasion to
review your portfolio and to assess your present and future financial needs.
To request your free copy of THE ABCS OF INVESTING SERIES, call MFS at
1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time.
As part of MFS Heritage Planning, your adviser has access to a wide range of
MFS materials he or she would be happy to share with you on topics related to
the intergenerational concerns of people today. These include financing
college tuition and a secure retirement, eldercare, tax-smart gifting
strategies, estate and health care planning, and other issues.
38
<PAGE> 42
IT'S EASY TO CONTACT US
[GRAPHIC OMITTED: TELEPHONE HANDSET] MFS AUTOMATED INFORMATION
ACCOUNT INFORMATION:
Call 1-800-MFS-TALK (1-800-637-8255)
anytime.
INVESTMENT OUTLOOK:
Call 1-800-637-4458 anytime for the MFS outlook
on the bond and stock markets.
[GRAPHIC OMITTED: QUESTION MARK] MFS PERSONAL SERVICE
ACCOUNT SERVICE/LITERATURE:
Call 1-800-225-2606 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.
IRA SERVICE:
Call 1-800-637-1255 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 OMITTED: ENVELOPE] MFS ADDRESSES
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
WORLD WIDE WEB:
www.mfs.com
39
<PAGE> 43
THE MFS FAMILY OF FUNDS(R)
AMERICA'S OLDEST MUTUAL FUND GROUP
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-225-2606
any business day from 8 a.m. to 8 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(R) Capital Growth Fund
MFS(R) Emerging Growth Fund
MFS(R) Gold & Natural Resources Fund
MFS(R) Growth Opportunities Fund
MFS(R) Managed Sectors Fund
MFS(R) OTC Fund
MFS(R) Research Fund
MFS(R) Research Growth and Income Fund
MFS(R) Strategic Growth Fund
MFS(R) Value Fund
STOCK AND BOND
- -----------------------------------------------------
MFS(R) Total Return Fund
MFS(R) Utilities Fund
BOND
- -----------------------------------------------------
MFS(R) Bond Fund
MFS(R) Government Mortgage Fund
MFS(R) Government Securities Fund
MFS(R) High Income Fund
MFS(R) Intermediate Income Fund
MFS(R) Strategic Income Fund
LIMITED MATURITY BOND
- -----------------------------------------------------
MFS(R) Government Limited Maturity Fund
MFS(R) Limited Maturity Fund
MFS(R) Municipal Limited Maturity Fund
WORLD
- -----------------------------------------------------
MFS(R)/Foreign & Colonial Emerging Markets
Equity Fund
MFS(R)/Foreign & Colonial International
Growth Fund
MFS(R)/Foreign & Colonial International
Growth and Income Fund
MFS(R) World Asset Allocation Fundsm
MFS(R) World Equity Fund
MFS(R) World Governments Fund
MFS(R) World Growth Fund
MFS(R) World Total Return Fund
NATIONAL TAX-FREE BOND
- -----------------------------------------------------
MFS(R) Municipal Bond Fund
MFS(R) Municipal High Income Fund
MFS(R) 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(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
40
<PAGE> 44
MFS(R) WORLD ASSET ALLOCATION FUND(SM)
TRUSTEES
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991),
Massachusetts Financial Services Company;
Director, Cambridge Bancorp; Director,
Cambridge Trust Company
Marshall N. Cohan - Private Investor
Lawrence H. Cohn, M.d. - Chief Of Cardiac
Surgery, Brigham and Women's Hospital;
Professor of Surgery, Harvard Medical School
The Hon. Sir J. David Gibbons, KBE - Chief
Executive Officer, Edmund Gibbons Ltd.;
Chairman, Bank of N.T. Butterfield & Son Ltd.
Abby M. O'Neill - Private Investor;
Director, Rockefeller Financial Services, Inc.
(investment advisers)
Walter E. Robb, III - President and Treasurer,
Benchmark Advisors, Inc. (corporate financial
consultants); President, Benchmark Consulting
Group, Inc. (office services); Trustee, Landmark
Funds (mutual funds)
Arnold D. Scott* - Senior Executive Vice
President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director,
Massachusetts Financial Services Company
J. Dale Sherratt - President, Insight Resources,
Inc. (acquisition planning specialists)
Ward Smith - Former Chairman (until 1994),
NACCO Industries; Director, Sundstrand
Corporation
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
ASSET ALLOCATION COMMITTEE*
A. Keith Brodkin Leslie J. Nanberg
Jeffery L. Shames James T. Swanson
John W. Ballen
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
CUSTODIAN
Investors Bank & Trust Company
AUDITORS
Ernst & Young LLP
INVESTOR INFORMATION
For MFS stock and bond market outlooks, call
toll free: 1-800-637-4458 anytime from a
touch-tone telephone.
For information on MFS mutual funds,
call your financial adviser or, for an
information kit, call toll free:
1-800-637-2929 any business day from
9 a.m. to 5 p.m. Eastern time (or leave
a message anytime).
WORLD WIDE WEB
www.mfs.com
[GRAPHIC OMITTED: MFS DALBAR SEAL]
For the third year in a row, MFS earned a #1 ranking in the DALBAR, Inc.
Broker/Dealer Survey, Main Office Operations Service Quality Category. The firm
achieved a 3.48 overall score on a scale of 1 to 4 in the 1996 survey. A total
of 110 firms responded, offering input on the quality of service they received
from 29 mutual fund companies nationwide. The survey contained questions about
service quality in 15 categories, including "knowledge of phone service
contacts," "accuracy of transaction processing," and "overall ease of doing
business with the firm."
*Affiliated with the Investment Adviser 41
