<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) GLOBAL ASSET
ALLOCATION FUND
ANNUAL REPORT o AUGUST 31, 1999
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 20
Notes to Financial Statements ............................................. 27
Independent Auditors' Report .............................................. 37
MFS' Year 2000 Readiness Disclosure ....................................... 39
Trustees and Officers ..................................................... 41
MFS ORIGINAL RESEARCH(SM)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
The current investment and economic environment bears little resemblance to last
year's. One year ago, global economies were floundering, and the crisis in Asia
threatened an already weak U.S. economy. Corporate earnings were flat, and
economists used the word "deflation" for the first time in recent memory.
Entering 1999, expectations for corporate earnings growth were lowered
dramatically. In an attempt to foster U.S. growth, the Federal Reserve Board
(the Fed) lowered interest rates.
As a result, this year the U.S. economy is booming and unemployment is low. Many
corporations are focused on improving their profitability, and investors have
been rewarded with positive surprises across a variety of industries. Our
analysts predict that corporate earnings growth for 1999 will average 12% - 15%.
Global economies also are showing signs of strength, and the Asian crisis has
passed. In fact, Japan's economic woes seem to have reached bottom. Although the
process is in its infancy, some Japanese corporations not only are talking about
restructuring and cost cutting, they also are beginning to take action, looking
within to become more competitive and improve returns on equity. While still
lagging the United States, Europe is beginning to restructure and consolidate.
These signs of international growth have contributed to concerns that the U.S.
economy now may be too strong. In June, and again in August, the Fed raised
rates by one-quarter of a percentage point to help ward off the specter of
inflation.
After an unprecedented four years of 20% annual returns in the U.S. equity
market, we fear that many investors have become accustomed to high returns and
have lost sight of the risks they take on to achieve them. In the current market
many investors are taking on additional risk - whether through day trading or
investing in speculative Internet stocks.
Risks are as much a part of the market today as they were one year ago. We
believe the market remains overvalued, with stocks priced 30% above our
analysts' earnings projections. And market narrowness has not abated; the top 25
stocks in the Standard & Poor's 500 Composite Index, a popular, unmanaged index
of common stock total return performance, are still the most overvalued. Such
extreme overvaluation makes the stock market sensitive to interest-rate news and
any negative earnings surprises. The Year 2000 (Y2K) computer problem is another
factor causing investor concern. While we believe corporate America is well
prepared to address any Y2K situations that may arise at year-end, no one can
predict investor behavior. In our opinion, it is investor behavior that has the
greatest potential to create market volatility.
We believe the best way to address Y2K and other market risks is through our
continuing commitment to MFS Original Research(R) and our fundamental investment
tenet of long-term investing. Whether markets are up or down, MFS analysts focus
on analyzing industries and visiting companies to determine the long-term
winners and the prices that will make them attractive opportunities. Because all
companies will not benefit equally from the improving international environment,
bottom-up research remains critical to identifying those that we believe are
successfully restructuring, consolidating, and gaining market share.
Changes in market and economic conditions can't be predicted but should always
be expected. The changes we have seen over the past year only reinforce our
commitment to long-term planning and investing. We believe volatility helps to
create opportunity for long-term investors to buy solid companies at attractive
prices. For this reason, we are continuing to expand our domestic and
international capabilities to ensure that MFS has primary, in-house research on
companies worldwide. We believe that we have built the right investment team,
backed by MFS Original Research, to take advantage of those opportunities for
our shareholders.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
September 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Joseph C. Flaherty, Jr.]
Joseph C. Flaherty, Jr.
Dear Shareholders,
For the 12 months ended August 31, 1999, the Fund's Class A shares provided a
total return of 12.29%, Class B shares 11.67%, Class C shares 11.65%, and Class
I shares 12.73%. These returns assume the reinvestment of any distributions but
exclude the effects of any sales charges and compare to returns over the same
period of 39.83% for the Standard & Poor's 500 Composite Index (the S&P 500), a
popular, unmanaged index of common stock total return performance; 26.03% for
the Morgan Stanley Capital International (MSCI) Europe, Australia, Far East
(EAFE) Index, an unmanaged index of international stocks; 0.80% for the Lehman
Brothers Aggregate Bond Index, an unmanaged index of U.S. Treasury,
government-agency, corporate, and mortgage-backed securities; and 5.13% for the
J.P. Morgan Non-Dollar Government Bond Index, an unmanaged aggregate of actively
traded government bonds issued by 12 countries (excluding the United States)
with remaining maturities of at least one year. For the same period, the average
global flexible portfolio fund tracked by Lipper Analytical Services, Inc., an
independent firm that reports mutual fund performance, returned 20.73%.
The Fund employs an investment process that is a blend of quantitative and
fundamental research in an effort to deliver high risk-adjusted returns. The
top-down asset allocation is based on an MFS-proprietary quantitative model that
uses a set of valuation, macroeconomic, and technical factors to identify, and
attempt to capitalize on, changing patterns of reward available in equity and
fixed income markets around the world. Within each market, individual security
selection is based on the long tradition of MFS Original Research(R).
As of August 31, 1999, the weightings were 28% in U.S. equities, 32% in
international equities, 17% in international bonds, 2% in emerging market debt,
2% in U.S. high-yield bonds, and 19% in U.S. government bonds.
EQUITIES
The portfolio's performance has been hurt by our underweighting in both U.S. and
international equities. At the beginning of the period, we were concerned about
a continued sell-off prompted by the devaluation of the Russian ruble and about
hedge fund problems, with both events contributing to investors' flight from
equities to the safety of U.S. Treasury bonds. In 1999, we have been concerned
about overvalued stocks, rising interest rates, and the narrowing of the market
to a small group of overvalued stocks, particularly those in the S&P 500.
We did, however, start to see a broadening of the market in the spring. Our top
sector at the end of August was technology. We like Cisco Systems, which helps
supply the infrastructure needed for the Internet, Oracle Corp., a well-
established database company that has been especially strong recently, and Intel
Corp., which makes chips for personal computers. Our second-largest sector was
utilities and communications, and in this sector we held a few foreign stocks
such as Mannesmann, one of the strongest cellular phone companies in Germany,
and NTT Mobile Communications, a Japanese wireless services company. We are
closely watching valuations in the global equity markets. If interest rates or
inflation begin to rise significantly, we could see equities falter, so we are
defensively positioned with regard to stock investments.
INTERNATIONAL BONDS
We have been overweighted in the Japanese bond market, implemented through the
use of futures contracts, which has been the best performer in its asset class
for the first eight months of 1999. As we begin to see signs of strong overall
growth in the European and Japanese equity markets, we will likely reduce our
allocation to international bonds. On the corporate side, we like bonds issued
by Telewest, which offers cable and telephone services to homes in the United
Kingdom, and Colt Telecom, a U.K.-based telecommunications company. Europe was
slower to deregulate these industries than the United States, but many companies
are now increasing their bond issuance.
Our strategy for emerging market debt has been to move tactically in and out of
these securities to try to capture the rallies: In March and April they did
well, we moved out of them in May before they collapsed, and then we moved back
in June.
U.S. HIGH-YIELD BONDS
This asset class has benefited the Fund thanks to a favorable environment of
moderate U.S. economic growth and low inflation. This scenario, which we believe
should continue, has allowed companies to boost revenue that they can then use
to help to pay down debt and improve credit ratings. Within the high-yield
sector, we emphasize better-quality companies whose securities are sufficiently
liquid to allow us to execute our tactical asset allocation strategy. The
telecommunications sector, specifically companies focused on expanding voice and
data traffic via the Internet, has been strong. Our holding in Nextel
Communications, in which Microsoft is an investor, contributed positively to
performance.
U.S. GOVERNMENT BONDS
U.S. government bonds performed well in 1998, but have not performed well this
year because of inflation concerns and a pair of rate increases by the Federal
Reserve Board. We have been underweighted in U.S. government bonds for the
better part of 1999, which has contributed positively to our performance year to
date.
Looking ahead, our asset allocation will continue to be determined by the
volatility in the U.S. equity market, in which people have been investing
heavily. Should there be greater competition for capital and continued
improvement in the economies of Europe and Japan, investors may look more toward
them than the U.S. markets. There is also ongoing concern about rising interest
rates. We believe following our discipline in the face of volatility may help us
control downside risk.
Respectfully,
/s/ Joseph C. Flaherty, Jr.
Joseph C. Flaherty, Jr.
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. The manager's views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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JOSEPH C. FLAHERTY, JR., IS VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R) AND
MANAGER OF THE QUANTITATIVE RESEARCH GROUP. HE IS PORTFOLIO MANAGER OF MFS(R)
GLOBAL ASSET ALLOCATION FUND AND THE GLOBAL ASSET ALLOCATION SERIES OFFERED
THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS.
MR. FLAHERTY JOINED MFS AS A FIXED-INCOME QUANTITATIVE RESEARCH ASSOCIATE IN
1993 AND WAS NAMED QUANTITATIVE RESEARCH ANALYST AND ASSISTANT VICE PRESIDENT IN
1996. HE BECAME VICE PRESIDENT AND MANAGER OF THE QUANTITATIVE RESEARCH GROUP IN
1998 AND PORTFOLIO MANAGER IN 1999. MR. FLAHERTY EARNED A BACHELOR OF SCIENCE
DEGREE FROM TUFTS UNIVERSITY IN 1984 AND AN M.B.A. DEGREE IN FINANCE FROM
BENTLEY COLLEGE IN 1990.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY AN
INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL RESEARCH(R), A
COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING SECURITIES.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial consultant, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS LONG-TERM TOTAL RETURN THROUGH INVESTMENTS
IN EQUITY AND FIXED-INCOME SECURITIES, PLUS LOW SHARE
PRICE VOLATILITY AND RISK COMPARED TO AN AGGRESSIVE
EQUITY/FIXED-INCOME FUND.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JULY 22, 1994
CLASS INCEPTION: CLASS A JULY 22, 1994
CLASS B JULY 22, 1994
CLASS C JULY 22, 1994
CLASS I JANUARY 7, 1997
SIZE: $225.4 MILLION NET ASSETS AS OF AUGUST 31, 1999
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and reflect
the percentage change in net asset value, including reinvestment of dividends.
Benchmark comparisons are unmanaged and do not reflect any fees or expenses. The
performance of other share classes will be greater than or less than the line
shown. (See Notes to Performance Summary for more information.) It is not
possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Fund's investment information,
July 22, 1994, through August 31, 1999. Index information is from August 1,
1994.)
MFS S&P J.P. Morgan Lehman
Global Asset 500 Non-Dollar Brothers
Allocation Composite Government MSCI Aggregate
Fund-D Class A Index Bond Index EAFE Index Bond Index
-------------- ----- ---------- ---------- ----------
August, 1994 $ 9,735 $10,410 $ 9,945 $10,239 $10,012
August, 1995 10,852 12,643 11,647 10,320 11,144
August, 1996 12,396 15,010 12,658 11,166 11,601
August, 1997 14,338 21,112 12,303 12,211 12,762
August, 1998 14,092 22,821 13,240 12,227 14,110
August, 1999 15,824 31,909 13,920 15,409 14,223
<PAGE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RETURNS THROUGH
AUGUST 31, 1999
CLASS A
1 Year 3 Years 5 Years Life*
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Cumulative Total Return +12.29% +27.65% +62.55% +66.13%
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Average Annual Total Return +12.29% + 8.48% +10.20% +10.44%
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SEC Results + 6.96% + 6.73% + 9.14% + 9.40%
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CLASS B
1 Year 3 Years 5 Years Life*
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Cumulative Total Return +11.67% +25.57% +57.81% +61.07%
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Average Annual Total Return +11.67% + 7.89% + 9.55% + 9.78%
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SEC Results + 7.67% + 7.07% + 9.27% + 9.64%
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CLASS C
1 Year 3 Years 5 Years Life*
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Cumulative Total Return +11.65% +25.63% +58.06% +61.32%
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Average Annual Total Return +11.65% + 7.90% + 9.59% + 9.81%
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SEC Results +10.65% + 7.90% + 9.59% + 9.81%
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CLASS I
1 Year 3 Years 5 Years Life*
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Cumulative Total Return +12.73% +29.19% +64.51% +68.12%
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Average Annual Total Return +12.73% + 8.91% +10.47% +10.70%
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COMPARATIVE INDICES
1 Year 3 Years 5 Years Life*
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Average global flexible portfolio
fund+ +20.73% +11.91% +11.30% +11.78%
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Standard & Poor's 500 Composite
Index# +39.83% +28.58% +25.11% +25.64%
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J.P. Morgan Non-Dollar Government
Bond Index# + 5.13% + 3.22% + 6.96% + 6.72%
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MSCI EAFE Index# +26.03% +11.33% + 8.52% + 8.88%
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Lehman Brothers Aggregate Bond
Index# + 0.80% + 7.03% + 7.27% + 7.18%
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* For the period from the commencement of the Fund's investment operations,
July 22, 1994, through August 31, 1999. Index information is from
August 1, 1994.
+ Source: Lipper Analytical Services, Inc.
# Source: Standard & Poor's Micropal, Inc.
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 4.75% sales charge. Class B
share ("B") SEC results reflect the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C shares ("C") have
no initial sales charge but, like B, have higher annual fees and expenses than
A. C SEC results reflect the 1% CDSC applicable to shares redeemed within 12
months. Class I shares ("I") have no sales charge or Rule 12b-1 fees and are
only available to certain institutional investors.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been higher
than A performance. The A performance included in the I performance has been
adjusted to reflect the fact that I have no initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies and
waivers may be discontinued at any time. All results are historical and assume
the reinvestment of dividends and capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably affected
by changes in interest rates and currency exchange rates, market conditions, and
the economic and political conditions of the countries where investments are
made. These risks may increase share price volatility. See the prospectus for
details.
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1999
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 21.4%
UTILITIES & COMMUNICATIONS 14.5%
FINANCIAL SERVICES 13.4%
LEISURE 8.1%
CONSUMER STAPLES 7.8%
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- August 31, 1999
<TABLE>
<CAPTION>
Stocks - 60.4%
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ISSUER SHARES VALUE
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<S> <C> <C>
U.S. Stocks - 28.5%
Advertising - 0.2%
Young & Rubicam, Inc. 9,500 $ 423,938
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Aerospace - 0.4%
General Dynamics Corp. 5,200 $ 327,600
United Technologies Corp. 9,100 601,738
------------
$ 929,338
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Biotechnology
Genentech Inc.* 500 $ 82,125
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Broadcasting - 1.0%
Clear Channel Communications, Inc.* 14,092 $ 987,321
Infinity Broadcasting Corp.* 45,600 1,234,050
------------
$ 2,221,371
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Business Machines - 0.7%
Affiliated Computer Services, Inc., "A"* 15,300 $ 654,075
Kulicke & Soffa Industries, Inc.* 13,300 273,481
Sun Microsystems, Inc.* 7,100 564,450
------------
$ 1,492,006
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Computer Software - Services - 0.5%
DST Systems, Inc.* 7,100 472,150
EMC Corp.* 11,000 660,000
------------
$ 1,132,150
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Computer Software - Systems - 3.7%
BMC Software, Inc.* 13,600 $ 731,850
Cadence Design Systems, Inc.* 18,500 252,062
Computer Associates International, Inc. 8,650 488,725
Compuware Corp.* 19,400 585,637
First Data Corp. 15,100 664,400
Informatica Corp.* 100 5,613
Intuit, Inc.* 2,200 197,038
Microsoft Corp.* 33,100 3,063,819
Oracle Corp.* 45,700 1,668,050
Policy Management Systems Corp.* 3,800 116,138
Quest Software, Inc.* 150 6,281
Redback Networks, Inc.* 200 21,500
Synopsys, Inc.* 7,800 436,312
VERITAS Software Corp.* 1,300 77,025
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$ 8,314,450
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Conglomerates - 2.7%
Corning, Inc. 2,600 $ 172,900
Danaher Corp. 2,800 164,500
General Electric Co. 8,800 988,350
Tyco International Ltd. 47,720 4,834,632
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$ 6,160,382
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Consumer Goods and Services - 1.5%
Cendant Corp.* 36,300 $ 651,131
Clorox Co. 3,800 171,950
Colgate-Palmolive Co. 15,700 839,950
Gillette Co. 15,500 722,687
Newell Rubbermaid, Inc. 18,400 754,400
Sodexho Marriott Services, Inc.* 17,100 241,538
------------
$ 3,381,656
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Electronics - 2.0%
Altera Corp.* 9,600 $ 404,400
Analog Devices, Inc.* 17,800 916,700
Flextronics International Ltd.* 10,900 639,694
GlobeSpan, Inc.* 100 6,050
Intel Corp. 12,700 1,043,781
Micron Technology, Inc.* 7,900 589,044
Novellus Systems, Inc.* 2,900 156,419
Teradyne, Inc.* 5,800 394,762
Thomas & Betts Corp. 8,700 391,500
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$ 4,542,350
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Entertainment - 1.4%
CBS Corp.* 13,900 $ 653,300
Comcast Corp., "A" 27,500 897,188
Time Warner, Inc. 23,400 1,387,912
Univision Communications, Inc., "A"* 3,500 258,125
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$ 3,196,525
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Financial Institutions - 1.6%
American Express Co. 3,400 $ 467,500
Associates First Capital Corp., "A" 30,100 1,032,806
Citigroup, Inc. 27,250 1,210,922
Morgan Stanley Dean Witter & Co. 3,500 300,344
Providian Financial Corp. 6,700 520,087
------------
$ 3,531,659
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Financial Services
Concord EFS, Inc.* 2,300 $ 85,388
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Food and Beverage Products - 1.5%
Bowater, Inc. 7,700 $ 412,912
Keebler Foods Co. 2,000 59,625
Kroger Co.* 59,000 1,364,375
McDonald's Corp. 15,800 653,725
Quaker Oats Co. 4,000 267,250
Ralston-Ralston Purina Group 5,800 159,500
Wendy's International, Inc. 13,900 389,200
------------
$ 3,306,587
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Insurance - 0.9%
American International Group, Inc. 9,625 $ 892,117
Equitable Cos., Inc. 11,000 679,250
Lincoln National Corp. 10,000 468,750
------------
$ 2,040,117
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Internet - 0.2%
America Online, Inc.* 1,100 $ 100,444
Ariba, Inc.* 200 27,800
Frontier Corp. 4,900 205,494
Rhythms NetConnections, Inc.* 1,900 72,675
USinternetworking, Inc.* 200 3,000
Worldgate Communications, Inc.* 100 2,881
------------
$ 412,294
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Leisure - 0.3%
Galileo International, Inc. 15,700 $ 761,450
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Machinery - 0.1%
Deere & Co., Inc. 8,100 $ 314,888
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Medical and Health Products - 2.4%
American Home Products Corp. 18,400 $ 763,600
Boston Scientific Corp.* 9,600 325,800
Bristol-Myers Squibb Co. 13,300 935,988
Cardinal Health, Inc. 8,500 541,875
Guidant Corp. 17,900 1,050,506
HEALTHSOUTH Corp.* 26,400 216,150
United Healthcare Corp. 24,600 1,495,987
------------
$ 5,329,906
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Oils - 0.3%
Conoco, Inc., "A" 12,200 $ 326,350
Enron Oil & Gas Co. 14,900 355,738
------------
$ 682,088
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Pharmaceuticals - 0.3%
Pharmacia & Upjohn, Inc. 12,000 $ 627,000
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Photographic Products - 0.1%
Polaroid Corp. 6,500 $ 176,313
- --------------------------------------------------------------------------------------------------
Retail - 2.2%
CVS Corp. 18,700 $ 779,556
Dayton Hudson Corp. 11,600 672,800
Linens 'n Things, Inc.* 4,000 137,000
Lowe's Cos., Inc. 16,300 737,575
Office Depot, Inc.* 34,050 355,397
Rite Aid Corp. 16,700 308,950
Safeway, Inc.* 7,400 344,563
TJX Cos., Inc. 20,100 580,387
Wal-Mart Stores, Inc. 22,500 997,031
------------
$ 4,913,259
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Technology - 0.5%
LSI Logic Corp.* 19,200 $ 1,089,600
- --------------------------------------------------------------------------------------------------
Telecommunications - 4.0%
American Tower Corp., "A"* 11,500 $ 261,625
AT&T Corp.* 5,100 163,200
Century Telephone Enterprises 8,475 333,173
Cisco Systems, Inc.* 38,200 2,590,437
Cox Communications, Inc.* 4,000 148,750
Global TeleSystems Group, Inc.* 2,200 71,088
Lucent Technologies, Inc. 10,800 691,875
MCI WorldCom, Inc.* 21,000 1,590,750
Motorola, Inc. 7,300 673,425
Nortel Networks Corp. 17,000 698,063
Qwest Communications International, Inc.* 10,000 287,500
Sprint Corp. (PCS Group)* 7,920 473,220
Tellabs, Inc.* 13,700 816,006
Winstar Communications, Inc.* 6,100 309,956
------------
$ 9,109,068
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Total U.S. Stocks $ 64,255,908
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Foreign Stocks - 31.9%
Australia - 0.8%
QBE Insurance Group Ltd. (Insurance)* 515,676 $ 1,843,562
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Canada - 1.0%
Abitibi-Consolidated, Inc. (Forest and Paper
Products) 19,400 $ 230,375
Canadian National Railway Co. (Railroads) 31,800 2,021,287
------------
$ 2,251,662
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Finland - 1.2%
Helsingin Puhelin Oyj (Telecommunications) 32,000 $ 1,489,452
Nokia Corp., ADR (Telecommunications) 3,600 300,150
Perlos Corp. (Electronics)* 7,200 102,823
Pohjola Group Insurance Corp. (Insurance) 17,100 833,914
------------
$ 2,726,339
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France - 3.9%
Castorama-Dubois Investisse (Retail) 5,700 $ 1,489,346
Pernod Ricard Co. (Beverages) 18,100 1,390,078
Television Francaise (Broadcasting) 5,900 1,472,950
Total S.A., "B" (Oils) 18,500 2,387,567
Union des Assurances Federales S.A. (Insurance) 12,900 1,600,706
Wavecom S.A., ADR (Electronics)* 26,800 415,400
------------
$ 8,756,047
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Germany - 2.9%
Henkel KGaA, Preferred (Chemicals) 23,100 $ 1,673,888
Mannesmann AG (Conglomerate) 25,900 3,978,234
Wella AG (Consumer Goods and Services)* 31,330 894,845
------------
$ 6,546,967
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Greece - 0.5%
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 53,588 $ 1,112,073
- --------------------------------------------------------------------------------------------------
Ireland - 0.2%
Bank of Ireland (Banks and Credit Cos.)* 40,900 $ 370,790
- --------------------------------------------------------------------------------------------------
Italy - 0.9%
Telecom Italia Mobile S.P.A. (Telecommunications) 57,600 $ 335,736
Telecom Italia Mobile S.P.A., Saving Shares
(Telecommunications) 518,800 1,800,105
------------
$ 2,135,841
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Japan - 4.6%
Canon, Inc. (Office Equipment) 61,000 $ 1,785,338
Fujitsu Ltd. (Computer Hardware - Systems) 28,000 822,060
Hitachi (Electronics) 197,000 2,001,802
Mitsubishi Motor (Automotive) 30,000 163,260
NTT Mobile Communications Network, Inc.
(Telecommunications) 55 915,535
NTT Mobile Communications Network, Inc. - New Shares
(Telecommunications)* 196 3,244,707
Olympus Optical Co. (Conglomerate) 30,000 447,524
Takeda Chemical Industries Co. (Pharmaceuticals) 20,000 1,006,082
------------
$ 10,386,308
- --------------------------------------------------------------------------------------------------
Netherlands - 3.1%
Akzo Nobel N.V. (Chemicals) 27,700 $ 1,290,772
Benckiser N.V., "B" (Consumer Goods and Services) 35,998 2,201,051
ING Groep N.V. (Finance)* 36,133 1,983,788
Libertel N.V. (Telecommunications)* 12,300 234,208
Wolters Kluwer N.V. (Publishing)* 32,400 1,206,457
------------
$ 6,916,276
- --------------------------------------------------------------------------------------------------
Norway - 0.5%
Storebrand ASA (Insurance) 164,300 $ 1,090,788
- --------------------------------------------------------------------------------------------------
Portugal - 0.9%
Banco Pinto & Sotto Mayor S.A. (Banks and Credit Cos.) 77,000 $ 1,427,081
Telecel - Comunicacoes Pessoais S.A. (Telecommunications) 5,600 723,908
------------
$ 2,150,989
- --------------------------------------------------------------------------------------------------
Singapore - 0.5%
Development Bank of Singapore (Banks and Credit Cos.) 48,846 $ 559,981
Overseas Union Bank Ltd. (Banks and Credit Cos.) 93,000 486,130
------------
$ 1,046,111
- --------------------------------------------------------------------------------------------------
Spain - 0.5%
Repsol S.A. (Oils) 54,100 $ 1,130,858
- --------------------------------------------------------------------------------------------------
Sweden - 1.3%
Ericsson LM, ADR (Telecommunications) 17,600 $ 573,100
Saab AB, "B" (Aerospace) 295,000 2,311,126
------------
$ 2,884,226
- --------------------------------------------------------------------------------------------------
Switzerland - 2.0%
Barry Callebaut AG (Food and Beverage Products) 2,180 $ 374,694
Nestle S.A. (Food and Beverage Products) 550 1,087,129
Novartis AG (Medical and Health Products) 435 626,892
UBS AG (Banks and Credit Cos.) 8,900 2,515,205
------------
$ 4,603,920
- --------------------------------------------------------------------------------------------------
United Kingdom - 7.1%
AstraZeneca Group PLC (Medical and Health Products) 55,344 $ 2,171,275
BP Amoco PLC (Oils)* 85,718 1,590,024
British Aerospace (Aerospace)* 376,533 2,747,151
British Telecommunications PLC (Telecommunications)* 118,100 1,808,794
Cable & Wireless Communications PLC (Telecommunications) 313,000 3,268,070
Freeserve Ordinary PLC (Computer Software - Systems)* 11,425 33,453
Next PLC (Retail) 174,000 2,001,509
Orange PLC (Telecommunications) 46,700 788,500
Reuters Group PLC (Business Services) 20,900 307,155
Tomkins PLC (Conglomerate) 284,000 1,238,197
------------
$ 15,954,128
- --------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 71,906,885
- --------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $115,819,180) $136,162,793
- --------------------------------------------------------------------------------------------------
Bonds - 38.9%
- --------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- --------------------------------------------------------------------------------------------------
U.S. Bonds - 21.4%
Containers - 0.4%
Gaylord Container Corp., 9.75s, 2007 $ 175 $ 162,750
Silgan Holdings, Inc., 9s, 2009 900 855,000
------------
$ 1,017,750
- --------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.8%
Borden, Inc., 9.25s, 2019# $ 2,000 $ 1,850,920
- --------------------------------------------------------------------------------------------------
Printing and Publishing - 0.3%
Hollinger International Publishing, Inc., 9.25s, 2007 $ 650 $ 650,000
- --------------------------------------------------------------------------------------------------
Retail - 0.1%
Musicland Group, Inc., 9.875s, 2008 $ 250 $ 235,000
- --------------------------------------------------------------------------------------------------
Telecommunications - 0.7%
NEXTEL Communications, Inc., 0s to 2002, 9.75s to
2007 $ 425 $ 297,500
Pagemart Wireless, Inc., 0s to 2003, 11.25s to 2008 900 369,000
Western Wireless Corp., 10.5s, 2007 750 806,250
------------
$ 1,472,750
- --------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 19.1%
U.S. Treasury Notes, 5.5s, 2008 $ 20,000 $ 19,190,600
U.S. Treasury Notes, 5.625s, 2008# 24,699 23,838,487
------------
$ 43,029,087
- --------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 48,255,507
- --------------------------------------------------------------------------------------------------
Foreign Bonds - 17.5%
Argentina - 0.2%
Republic of Argentina, 5.938s, 2005 $ 563 $ 479,659
- --------------------------------------------------------------------------------------------------
Belgium - 0.3%
Esi Tractebel Acquisition Corp., 7.99s, 2011 (Energy
Conglomerate) EUR 700 $ 682,500
- --------------------------------------------------------------------------------------------------
Bulgaria - 0.3%
National Republic of Bulgaria, 6.5s, 2024 $ 1,000 $ 670,000
- --------------------------------------------------------------------------------------------------
Germany - 2.1%
Federal Republic of Germany, 4.5s, 2009 EUR 4,571 $ 4,671,026
- --------------------------------------------------------------------------------------------------
Greece - 3.4%
Hellenic Republic, 8.7s, 2005 GRD 2,136,000 $ 7,539,027
- --------------------------------------------------------------------------------------------------
Mexico - 0.6%
United Mexican States, 11.5s, 2026 $ 650 $ 706,095
United Mexican States, 10.375s, 2009 720 729,000
------------
$ 1,435,095
- --------------------------------------------------------------------------------------------------
Philippines - 0.4%
Republic of Philippines, 9.875s, 2019 $ 1,000 $ 941,300
- --------------------------------------------------------------------------------------------------
Poland - 0.3%
Netia Holdings B.V., 10.25s, 2007 (Telecommunications) $ 810 $ 696,600
- --------------------------------------------------------------------------------------------------
South Korea - 0.2%
Republic of Korea, 8.875s, 2008 $ 465 $ 475,509
- --------------------------------------------------------------------------------------------------
Sweden - 2.2%
Kingdom of Sweden, 6s, 2005 SEK 39,500 $ 4,959,930
- --------------------------------------------------------------------------------------------------
United Kingdom - 7.5%
Colt Telecom Group PLC, 8.875s, 2007
(Telecommunications) DEM 1,000 $ 541,140
Telewest PLC, 9.625s, 2006 (Media) $ 550 555,500
U.K. Treasury, 7.25s, 2007 GBP 8,849 15,866,332
------------
$ 16,962,972
- --------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 39,513,618
- --------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $90,363,873) $ 87,769,125
- --------------------------------------------------------------------------------------------------
Short-Term Obligations - 0.2%
- --------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------
Student Loan Marketing Assn., due 9/01/99,
at Amortized Cost $ 315 $ 315,000
- --------------------------------------------------------------------------------------------------
Other Short-Term Obligations - 2.5%
- --------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio
(Identified Cost, $5,767,565) 5,767,565 $ 5,767,565
- --------------------------------------------------------------------------------------------------
Call Options Purchased - 0.2%
- --------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
- --------------------------------------------------------------------------------------------------
Japanese Yen/January/105 JPY 1,718,340 $ 362,570
Swedish Kronor/October/13.65 SEK 100,279 153,627
- --------------------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $270,884) $ 516,197
- --------------------------------------------------------------------------------------------------
Put Options Purchased
- --------------------------------------------------------------------------------------------------
Japanese Yen/September/120 JPY 2,547,965 $ 0
Japanese Yen/September/117.6 1,253,963 26,333
Japanese Yen/September/125 1,576,055 0
- --------------------------------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $351,843) $ 26,333
- --------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $212,888,345) $230,557,013
- --------------------------------------------------------------------------------------------------
Call Options Written - (0.8)%
- --------------------------------------------------------------------------------------------------
Australian Dollars/October/0.64 AUD 9,775 $ (151,158)
Australian Dollars/November/0.62 AUD 13,176 (94,406)
Australian Dollars/April/0.625 AUD 13,493 (240,071)
Euro/October/1.045 EUR 22,145 (168,239)
Japanese Yen/September/118 JPY 1,487,796 (1,044,433)
Japanese Yen/November/108 JPY 1,148,452 (223,948)
- --------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $803,778) $ (1,922,255)
- --------------------------------------------------------------------------------------------------
Put Options Written
- --------------------------------------------------------------------------------------------------
Australian Dollar/October/0.68
Total Put Options Written (Premiums Received, $80,953) AUD 10,386 $ (6,304)
- --------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (1.4)% (3,228,094)
- --------------------------------------------------------------------------------------------------
Net Assets - 100.0% $225,400,360
- --------------------------------------------------------------------------------------------------
* Non-income producing security.
# Security segregated as collateral for open futures contract.
</TABLE>
<PAGE>
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars GBP = British Pounds
CAD = Canadian Dollars GRD = Greek Drachma
CHF = Swiss Francs HKD = Hong Kong Dollars
DEM = Deutsche Marks JPY = Japanese Yen
DKK = Danish Kroner NZD = New Zealand Dollars
EUR = Euro SEK = Swedish Kronor
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------------------
AUGUST 31, 1999
- -------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $212,888,345) $230,557,013
Cash 2,573
Net receivable for forward foreign currency exchange contracts to
purchase 1,733,636
Net receivable for forward foreign currency exchange contracts subject
to master netting agreements 193,100
Receivable for daily variation margin on open futures contracts 420,632
Receivable for Fund shares sold 37,867
Receivable for investments sold 893,301
Interest and dividends receivable 1,672,985
Other assets 2,160
------------
Total assets $235,513,267
------------
Liabilities:
Payable for foreign currency, at value (identified cost, $157) $ 153
Net payable for forward foreign currency exchange contracts to sell 372,522
Payable for Fund shares reacquired 890,156
Payable for investments purchased 836,862
Collateral for securities loaned, at value 5,767,565
Written options outstanding, at value (premiums received, $884,731) 1,928,559
Payable to affiliates -
Management fee 11,146
Distribution and service fee 181,157
Administrative fee 284
Accrued expenses and other liabilities 124,503
------------
Total liabilities $ 10,112,907
------------
Net assets $225,400,360
============
Net assets consist of:
Paid-in capital $213,820,732
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 16,704,172
Accumulated net realized loss on investments and foreign currency
transactions (9,373,451)
Accumulated undistributed net investment income 4,248,907
------------
Total $225,400,360
============
Shares of beneficial interest outstanding 13,556,910
==========
Class A shares:
Net asset value per share
(net assets of $79,908,236 / 4,793,415 shares of beneficial interest
outstanding) $16.67
======
Offering price per share (100 / 95.25 of net asset value per share) $17.50
======
Class B shares:
Net asset value and offering price per share
(net assets of $121,008,696 / 7,287,941 shares of beneficial interest
outstanding) $16.60
======
Class C shares:
Net asset value and offering price per share
(net assets of $24,437,952 / 1,472,819 shares of beneficial interest
outstanding) $16.59
======
Class I shares:
Net asset value per share
(net assets of $45,476 / 2,735 shares of beneficial interest
outstanding) $16.63
======
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.
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
- -------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999
- -------------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Interest $ 8,267,067
Dividends 2,125,491
Foreign taxes withheld (257,906)
-----------
Total investment income $10,134,652
-----------
Expenses -
Management fee $ 1,585,954
Trustees' compensation 29,679
Shareholder servicing agent fee 284,460
Distribution and service fee (Class A) 467,697
Distribution and service fee (Class B) 1,382,905
Distribution and service fee (Class C) 324,545
Administrative fee 32,981
Custodian fee 176,539
Printing 50,952
Postage 53,011
Auditing fees 37,834
Legal fees 5,931
Amortization of organization expenses 8,236
Miscellaneous 223,473
-----------
Total expenses $ 4,664,197
Fees paid indirectly (21,510)
-----------
Net expenses $ 4,642,687
-----------
Net investment income $ 5,491,965
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(5,812,992)
Written option transactions 4,111,152
Futures contracts (2,212,774)
Swap transactions (30,250)
Foreign currency transactions 5,471,887
-----------
Net realized gain on investments and foreign currency transactions $ 1,527,023
-----------
Change in unrealized appreciation (depreciation) -
Investments $32,145,399
Written options (1,089,759)
Futures (6,344,273)
Swaps (472,469)
Translation of assets and liabilities in foreign currencies 843,550
-----------
Net unrealized gain on investments and foreign currency translation $25,082,448
-----------
Net realized and unrealized gain on investments and foreign
currency $26,609,471
-----------
Increase in net assets from operations $32,101,436
===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 5,491,965 $ 7,474,543
Net realized gain on investments and foreign currency
transactions 1,527,023 19,047,077
Net unrealized gain (loss) on investments and foreign
currency translation 25,082,448 (29,254,502)
------------ ------------
Increase (decrease) in net assets from operations $ 32,101,436 $ (2,732,882)
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (3,664,797) $ (4,262,705)
From net investment income (Class B) (4,776,210) (5,657,934)
From net investment income (Class C) (1,137,215) (1,631,022)
From net investment income (Class I) (1,772) (1,557)
From net realized gain on investments and foreign
currency transactions (Class A) (5,161,038) (8,352,846)
From net realized gain on investments and foreign
currency transactions (Class B) (7,990,161) (12,932,341)
From net realized gain on investments and foreign
currency transactions (Class C) (2,008,247) (3,894,361)
From net realized gain on investments and foreign
currency transactions (Class I) (2,125) (2,636)
------------ ------------
Total distributions declared to shareholders $(24,741,565) $(36,735,402)
------------ ------------
Net decrease in net assets from Fund share transactions $(64,131,777) $(15,290,427)
------------ ------------
Total decrease in net assets $(56,771,906) $(54,758,711)
Net assets:
At beginning of period 282,172,266 336,930,977
------------ ------------
At end of period (including accumulated undistributed net
investment income of $4,248,907 and $3,063,223
respectively) $225,400,360 $282,172,266
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS -- continued
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.36 $18.75 $17.68 $16.63 $15.33
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.40 $ 0.47 $ 0.46 $ 0.43 $ 0.55
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.51 (0.69) 2.19 1.85 1.17
------ ------ ------ ------ ------
Total from investment operations $ 1.91 $(0.22) $ 2.65 $ 2.28 $ 1.72
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.66) $(0.72) $(0.40) $(0.49) $(0.37)
From net realized gain on investments
and foreign currency transactions (0.94) (1.45) (1.18) (0.74) (0.05)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.60) $(2.17) $(1.58) $(1.23) $(0.42)
------ ------ ------ ------ ------
Net asset value - end of period $16.67 $16.36 $18.75 $17.68 $16.63
====== ====== ====== ====== ======
Total return(+) 12.29% (1.72)% 15.67% 14.23% 11.48%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.44% 1.44% 1.43% 1.48% 1.47%
Net investment income 2.38% 2.57% 2.51% 2.45% 3.49%
Portfolio turnover 184% 127% 128% 202% 118%
Net assets at end of period (000 omitted) $79,908 $97,007 $111,959 $86,457 $58,663
# Per share data are 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.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
(S) 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 the fee had been incurred by the Fund, the net investment income per
share and the ratios would have been:
Net investment income -- -- $ 0.45 $ 0.42 $ 0.52
Ratios (to average net assets):
Expenses## -- -- 1.46% 1.53% 1.67%
Net investment income -- -- 2.48% 2.40% 3.29%
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.31 $18.70 $17.63 $16.58 $15.31
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.32 $ 0.38 $ 0.36 $ 0.32 $ 0.43
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.48 (0.69) 2.19 1.85 1.17
------ ------ ------ ------ ------
Total from investment operations $ 1.80 $(0.31) $ 2.55 $ 2.17 $ 1.60
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.57) $(0.63) $(0.30) $(0.38) $(0.28)
In excess of net investment income -- -- -- (0.74) (0.05)
From net realized gain on investments
and foreign currency transactions (0.94) (1.45) (1.18) -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.51) $(2.08) $(1.48) $(1.12) $(0.33)
------ ------ ------ ------ ------
Net asset value - end of period $16.60 $16.31 $18.70 $17.63 $16.58
====== ====== ====== ====== ======
Total return 11.67% (2.23)% 15.01% 13.58% 10.65%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.94% 1.94% 1.98% 2.10% 2.24%
Net investment income 1.91% 2.06% 1.96% 1.83% 2.75%
Portfolio turnover 184% 127% 128% 202% 118%
Net assets at end of period (000 omitted) $121,009 $147,882 $166,865 $124,399 $83,601
# Per share data are 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.
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.29 $18.67 $17.62 $16.58 $15.31
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.32 $ 0.38 $ 0.36 $ 0.33 $ 0.46
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.49 (0.70) 2.18 1.85 1.16
------ ------ ------ ------ ------
Total from investment operations $ 1.81 $(0.32) $ 2.54 $ 2.18 $ 1.62
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.57) $(0.61) $(0.31) $(0.40) $(0.30)
From net realized gain on investments
and foreign currency transactions (0.94) (1.45) (1.18) (0.74) (0.05)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.51) $(2.06) $(1.49) $(1.14) $(0.35)
------ ------ ------ ------ ------
Net asset value - end of period $16.59 $16.29 $18.67 $17.62 $16.58
====== ====== ====== ====== ======
Total return 11.65% (2.21)% 15.06% 13.62% 10.72%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.94% 1.94% 1.96% 2.03% 2.18%
Net investment income 1.93% 2.06% 2.00% 1.89% 2.91%
Portfolio turnover 184% 127% 128% 202% 118%
Net assets at end of period (000 omitted) $24,438 $37,248 $58,074 $33,283 $19,325
# Per share data are 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.
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998 1997*
- ----------------------------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.34 $18.74 $17.56
------ ------ ------
Income from investment operations# -
Net investment income $ 0.48 $ 0.57 $ 0.28
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 1.50 (0.70) 1.16
------ ------ ------
Total from investment operations $ 1.98 $(0.13) $ 1.44
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.75) $(0.82) $(0.26)
From net realized gain on investments and foreign
currency transactions (0.94) (1.45) --
------ ------ ------
Total distributions declared to shareholders $(1.69) $(2.27) $(0.26)
------ ------ ------
Net asset value - end of period $16.63 $16.34 $18.74
====== ====== ======
Total return 12.73% (1.21)% 8.22%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.94% 0.94% 0.97%+
Net investment income 2.84% 3.07% 3.43%+
Portfolio turnover 184% 127% 128%
Net assets at end of period (000 omitted) $45 $35 $34
* For the period from the commencement of the Fund's offering of Class I shares, January 7, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Global 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 reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. Debt securities (other than short-term obligations which mature in 60
days or less), including listed issues, forward contracts, and swap agreements,
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. Futures contracts and options contracts listed on
commodities exchanges are reported at market value using closing settlement
prices. Over-the-counter options on securities are valued by brokers.
Over-the-counter currency options are valued through the use of a pricing model
which takes into account foreign currency exchange spot and forward rates,
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 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.
Written Options - The Fund may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Fund realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written put option is exercised, the premium reduces the cost basis of the
security 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 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. In entering such contracts, the Fund is required
to deposit with the broker either in cash or securities an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the Fund each day, depending on the daily fluctuations in the value
of the contract, and are recorded for financial statement purposes as unrealized
gains or losses by the Fund. The Fund's investment in futures contracts is
designed to hedge against anticipated future changes in interest rates, exchange
rates, or securities prices. 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 the cash is being invested. Should interest rates, exchange rates, or
securities prices move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may realize a loss.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. State Street Bank and Trust Company ("State Street"), as
agent, loans the securities to certain brokers (the "Borrowers") approved by the
Fund. The loans are collateralized at all times by cash in an amount at least
equal to the market value of the securities loaned. State Street provides the
Fund with indemnification against Borrower default. The Fund bears the risk of
loss with respect to the investment of cash collateral.
At August 31, 1999, the value of securities loaned was $5,590,711. These loans
were collateralized by cash of $5,767,565. Cash collateral is invested in
short-term securities, which are included in the Portfolio of Investments. A
portion of the income generated upon investment of the collateral is remitted to
the Borrowers, and the remainder is allocated between the Fund and State Street
in its capacity as lending agent. Income from securities lending is included in
interest income on the Statement of Operations. The dividend and interest income
earned on the securities loaned is accounted for in the same manner as other
dividend and interest income.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund may enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
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 or 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 discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Fund. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized loss. During
the year ended August 31, 1999, $5,273,713 was reclassified from accumulated net
realized gain on investments and foreign currency transactions to accumulated
undistributed net investment income due to differences between book and tax
accounting for currency transactions. This change had no effect on the net
assets or net asset value per share. At August 31, 1999, accumulated
undistributed net investment income and realized loss on investments and foreign
currency transactions under book accounting were different from tax accounting
due to temporary differences in accounting for wash sales and currency
transactions. At August 31, 1999, the Fund, for federal income tax purposes, had
a capital loss carryforward of $8,012,942 which may be applied against any net
taxable realized gains of each succeeding year until the earlier of its
utilization or expiration on August 31, 2007.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class Differences in per share
dividend rates are generally due to differences in separate class expenses.
Class B shares will convert to Class A shares approximately eight years after
purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60% of
the Fund's 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 officers and Trustees of the
Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $10,780 for the year ended
August 31, 1999.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee at
the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$19,024 for the year ended August 31, 1999, as its portion of the sales charge
on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.50% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class A shares
which are attributable to that securities dealer and a distribution fee to MFD
of up to 0.25% per annum of the Fund's average daily net assets attributable to
Class A shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $31,066 for the year ended August 31, 1999.
Fees incurred under the distribution plan during the year ended August 31, 1999,
were 0.50% 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 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 $31,149 and $30,697 for Class B and Class C shares, respectively,
for the year ended August 31, 1999. Fees incurred under the distribution plan
during the year ended August 31, 1999, were 1.00% of average daily net assets
attributable to Class B and Class C shares, on an annualized basis.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended August 31, 1999,
were $1,443, $372,484, and $8,015 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.10%. Prior to April 1, 1999, the fee was calculated as a percentage of the
Fund's average daily net assets at an effective annual rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
PURCHASES SALES
- ------------------------------------------------------------------------------
U.S. government securities $ 130,953,580 $ 102,133,229
-------------- --------------
Investments (non-U.S. government securities) $ 308,651,957 $ 401,195,515
-------------- --------------
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $ 213,691,070
--------------
Gross unrealized appreciation $ 25,859,730
Gross unrealized depreciation (8,993,787)
--------------
Net unrealized appreciation $ 16,865,943
==============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 16,688,497 $ 279,541,657 5,609,590 $ 103,919,937
Shares issued to shareholders
in reinvestment of
distributions 491,452 8,020,670 663,135 11,483,111
Shares reacquired (18,317,745) (308,025,633) (6,312,593) (117,203,453)
------------- ------------- ------------- -------------
Net decrease (1,137,796) $ (20,463,306) (39,868) $ (1,800,405)
============= ============= ============= =============
<CAPTION>
Class B Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 700,045 $ 11,627,770 1,697,015 $ 31,460,117
Shares issued to shareholders
in reinvestment of
distributions 677,063 11,008,381 919,190 15,824,754
Shares reacquired (3,157,596) (52,665,663) (2,472,223) (45,203,383)
------------- ------------- ------------- -------------
Net increase (decrease) (1,780,488) $ (30,029,512) 143,982 $ 2,081,488
============= ============= ============= =============
<CAPTION>
Class C Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 300,463 $ 4,987,004 574,075 $ 10,640,951
Shares issued to shareholders
in reinvestment of
distributions 137,612 2,237,218 220,230 3,793,114
Shares reacquired (1,251,546) (20,872,773) (1,618,988) (30,011,782)
------------- ------------- ------------- -------------
Net decrease (813,471) $ (13,648,551) (824,683) $ (15,577,717)
============= ============= ============= =============
<CAPTION>
Class I Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 396 $ 6,605 107 $ 2,021
Shares issued to shareholders
in reinvestment of
distributions 239 3,891 241 4,186
Shares reacquired (53) (904) -- --
------------- ------------- ------------- -------------
Net increase 582 $ 9,592 348 $ 6,207
============= ============= ============= =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $820 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended August 31, 1999, was $1,921. The Fund had no borrowings during the
year.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options, forward foreign currency exchange
contracts, swap agreements, and futures contracts. The notional or contractual
amounts of these instruments represent the investment the Fund has in particular
classes of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered.
Written Option Transactions
<TABLE>
<CAPTION>
1999 CALLS 1999 PUTS
----------------------------------- -----------------------------------
PRINCIPAL PRINCIPAL
AMOUNTS AMOUNTS
OF CONTRACTS OF CONTRACTS
(000 OMITTED) PREMIUMS (000 OMITTED) PREMIUMS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING, BEGINNING OF PERIOD -
Hong Kong Dollars -- $ -- 72,600 $ 273,056
Japanese Yen 5,750,160 427,825 6,310,348 107,648
Options written -
Australian Dollars 77,010 820,730 45,776 374,606
British Pounds 47,554 205,486 20,100 62,335
Canadian Dollars 68,410 280,301 18,102 28,840
Deutsche Marks/British Pounds 24,993 119,966 26,647 140,001
Euro 35,334 288,824 23,334 145,077
Euro/British Pounds 8,857 102,506 8,519 47,035
Hong Kong Dollars -- -- 72,763 206,732
Japanese Yen 18,187,356 1,712,771 3,033,770 211,016
Japanese Yen/Euro 1,201,022 143,770 -- --
South African Rand -- -- 41,112 79,183
Swedish Kroner/British Pounds 117,554 170,426 -- --
Options terminated in closing transactions -
Australian Dollars (25,733) (349,332) (30,050) (251,810)
British Pounds (8,298) (63,792) -- --
Canadian Dollar (30,141) (124,029) (18,102) (28,840)
Deutsche Marks/British Pounds (24,993) (119,966) (53) (20,035)
Euro -- -- (23,334) (145,077)
Euro/British Pounds (8,857) (102,506) (8,519) (47,035)
Japanese Yen (4,690,800) (595,260) (7,675,768) (190,119)
Japanese Yen/Euro (1,201,022) (143,770) -- --
Options exercised -
Australian Dollars (5,069) (66,159) -- --
Japanese Yen (8,552,096) (602,842) -- --
Options expired -
Australian Dollars (9,764) (56,443) (5,340) (41,843)
British Pounds (39,256) (141,694) (20,100) (62,335)
Canadian Dollar (38,269) (156,272) -- --
Deutsche Marks/British Pounds -- -- (26,594) (119,966)
Euro (13,189) (79,025) -- --
Hong Kong Dollars -- -- (145,363) (479,788)
Japanese Yen (8,058,372) (697,311) (1,668,350) (128,545)
South African Rand -- -- (41,112) (79,183)
Swedish Kroner/British Pounds (117,554) (170,426) -- --
---------- ---------
OUTSTANDING, END OF PERIOD $ 803,778 $ 80,953
========== =========
OPTIONS OUTSTANDING AT END OF PERIOD
CONSIST OF:
Australian Dollars 36,444 348,796 10,386 80,953
Euro 22,145 209,799 -- --
Japanese Yen 2,636,248 245,183 -- --
---------- ---------
OUTSTANDING, END OF PERIOD $ 803,778 $ 80,953
========== =========
</TABLE>
Certain options denominated in foreign currencies have been redenominated in
accordance with the Euro conversion.
At August 31, 1999, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 9/16/99 AUD 14,798,210 $ 9,636,150 $ 9,449,545 $ 186,605
9/16/99 CAD 4,492,334 3,076,941 3,003,901 73,040
9/16/99 CHF 13,270,951 8,701,692 8,791,019 (89,327)
9/16/99 DKK 54,505,528 7,749,969 7,756,593 (6,624)
9/16/99 EUR 14,196,241 15,007,747 15,036,544 (28,797)
9/16/99 GBP 3,022,214 4,824,632 4,862,980 (38,348)
4/17/00 HKD 194,292,123 24,788,731 24,813,053 (24,322)
9/16/99 JPY 715,575,281 6,116,028 6,560,777 (444,749)
------------ ------------- -----------
$ 79,901,890 $ 80,274,412 $ (372,522)
============ ============= ===========
Purchases 9/16/99 AUD 4,083,204 $ 2,704,714 $ 2,607,370 $ (97,344)
9/16/99 DKK 53,296,307 7,353,649 7,584,511 230,862
9/16/99 EUR 19,935,428 20,818,079 21,115,445 297,366
9/16/99 GBP 10,586,907 16,514,939 17,035,166 520,227
9/16/99 JPY 2,430,020,727 21,571,317 22,279,731 708,414
9/16/99 NZD 256,514 137,363 132,683 (4,680)
9/16/99 SEK 21,104,610 2,487,490 2,566,281 78,791
------------ ------------- -----------
$ 71,587,551 $ 73,321,187 $ 1,733,636
============ ============= ===========
</TABLE>
At August 31, 1999, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net payable of $294,547 with
Deutsche Bank and $836,368 with C.S. First Boston and a net receivable of
$1,324,015 with Merrill Lynch.
At August 31, 1999, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
Futures Contracts
UNREALIZED
APPRECIATION
DESCRIPTION EXPIRATION CONTRACTS POSITION (DEPRECIATION)
- --------------------------------------------------------------------------------
CAC Index September 1999 312 Long $(1,027,067)
DAX Index September 1999 32 Long (177,845)
FTSE Index September 1999 142 Long 517,152
Nikkei Index September 1999 216 Short 362,242
S&P 500 Index September 1999 9 Short 9,107
S&P Barra Growth Index September 1999 67 Long (595,128)
S&P Barra Value Index September 1999 79 Short (472,618)
Japanese Government
Bonds March 2000 17 Long (90,747)
-----------
$(1,474,904)
===========
At August 31, 1999, the Fund had sufficient cash and/or securities to cover
any margin requirements under these contracts.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of the MFS Series Trust I and the Shareholders of MFS Global
Asset Allocation Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Global Asset Allocation Fund (the Fund), including the schedule of portfolio
investments, as of August 31, 1999, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at August 31, 1999, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Global Asset Allocation Fund at August 31, 1999, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Boston, Massachusetts
October 9, 1999
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 2000, SHAREHOLDERS WILL BE MAILED A FORM 1099-DIV REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR 1999.
THE FUND HAS DESIGNATED $14,310,339 AS A CAPITAL GAIN DIVIDEND.
FOR THE YEAR ENDED AUGUST 31, 1999, THE AMOUNT OF DISTRIBUTIONS FROM INCOME
ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR CORPORATIONS CAME TO
2.33%.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and on behalf of the MFS
funds, is committed to the effective use of technology in managing our portfolio
investments, delivering high-quality service to MFS fund shareholders,
retirement plan participants, and MFS' institutional clients, and supporting the
financial consultants who sell our products. With that in mind, we created a
separately funded Year 2000 Program Management Office in 1996 comprised of a
specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers and
software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking steps
to ascertain the Y2K readiness of MFS' internal systems and is working with our
external systems vendors to determine whether they expect their systems to be
ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness. Each year, MFS' research analysts and portfolio managers conduct
more than 1,000 on-site meetings with companies whose securities are, or may be,
held in fund and client portfolios, and host an additional 1,500 meetings at
MFS' headquarters. When assessing the Y2K readiness of these companies, MFS'
research analysts and portfolio managers may rely upon discussions at these
meetings as well as SEC disclosure documents and third- party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While MFS
is taking significant steps to protect the integrity of its internal systems,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on MFS, shareholders of MFS funds, participants in retirement
plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston Street,
Boston, MA 02116-3741.
<PAGE>
MFS(R) GLOBAL ASSET ALLOCATION FUND
<TABLE>
<S> <C>
TRUSTEES ASSISTANT TREASURERS
Richard B. Bailey* - Private Investor; Mark E. Bradley*
Former Chairman and Director (until 1991), Ellen Moynihan*
MFS Investment Management James O. Yost*
Marshall N. Cohan - Private Investor SECRETARY
Stephen E. Cavan*
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital;
Professor of Surgery, Harvard Medical School ASSISTANT SECRETARY
James R. Bordewick, Jr.*
The Hon. Sir J. David Gibbons, KBE - Chief
Executive Officer, Edmund Gibbons Ltd.; CUSTODIAN
Chairman, Colonial Insurance Company, Ltd. State Street Bank and Trust Company
Abby M. O'Neill - Private Investor AUDITORS
Ernst & Young LLP
Walter E. Robb, III - President and Treasurer,
Benchmark Advisors, Inc.; President, INVESTOR INFORMATION
Benchmark Consulting Group, Inc. For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime
Arnold D. Scott* - Senior Executive from a touch-tone telephone.
Vice President, Director, and Secretary,
MFS Investment Management For information on MFS mutual funds, call
your financial consultant or, for an
Jeffrey L. Shames* - Chairman, Chief information kit, call toll free:
Executive Officer, and Director, 1-800-637-2929 any business day from
MFS Investment Management 9 a.m. to 5 p.m. Eastern time (or
leave a message anytime).
J. Dale Sherratt - President, Insight
Resources, Inc.; Managing General Partner, INVESTOR SERVICE
Wellfleet Investments; Chief Executive MFS Service Center, Inc.
Officer, Cambridge Nutraceuticals P.O. Box 2281
Boston, MA 02107-9906
Ward Smith - Former Chairman (until 1994), For general information, call toll free:
NACCO Industries 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
INVESTMENT ADVISER
Massachusetts Financial Services Company For service to speech- or hearing-impaired,
500 Boylston Street call toll free: 1-800-637-6576 any business
Boston, MA 02116-3741 day from 9 a.m. to 5 p.m. Eastern time. (To
use this service, your phone must be equipped
DISTRIBUTOR with a Telecommunications Device for the Deaf.)
MFS Fund Distributors, Inc.
500 Boylston Street For share prices, account balances, and
Boston, MA 02116-3741 exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
PORTFOLIO MANAGER telephone.
Joseph C. Flaherty, Jr.*
WORLD WIDE WEB
TREASURER www.mfs.com
W. Thomas London*
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*Affiliated with the Investment Adviser
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MFS(R) GLOBAL ASSET ALLOCATION FUND BULK RATE
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MWA-2 10/99 30M 88/288/388/888
