<PAGE>
Annual Report
[LOGO] M F S(SM) for Year Ended
INVESTMENT MANAGEMENT October 31, 1997
MFS(R) WORLD EQUITY FUND
[Graphic Omitted]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
A Discussion with the Portfolio Manager ................................... 3
Portfolio Manager's Profile ............................................... 7
Portfolio Concentration ................................................... 7
Fund Facts ................................................................ 8
Performance Summary ....................................................... 8
Tax Form Summary .......................................................... 11
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 18
Notes to Financial Statements ............................................. 25
Independent Auditors' Report .............................................. 32
Trustees and Officers ..................................................... 33
HIGHLIGHTS
o FOR THE 12 MONTHS ENDED OCTOBER 31, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 20.81%, CLASS B SHARES
19.74%, CLASS C SHARES 19.86%, AND CLASS I SHARES 20.76%. (SEE PERFORMANCE
SUMMARY FOR MORE INFORMATION.)
o WHILE EQUITY MARKETS IN THE UNITED STATES, EUROPE, AND LATIN AMERICA
PERFORMED REASONABLY WELL, AND THOSE IN OTHER REGIONS, SUCH AS SOUTHEAST
ASIA, DECLINED SUBSTANTIALLY, THE FUND HAS BEEN ABLE TO FIND COMPANIES IN
A VARIETY OF MARKETS THAT HAVE DONE WELL.
o ALTHOUGH THE DECLINE IN SOUTHEAST ASIAN MARKETS COULD BE PART OF A
LONGER-TERM PROBLEM, THE FUND HAS CONTINUED TO INVEST IN SELECT COMPANIES
THAT WE BELIEVE MAY NOT BE IMPACTED TO A SIGNIFICANT DEGREE BY EVENTS IN
THE REGION.
o TWO OF THE FUND'S LARGEST SECTORS ARE FINANCIAL SERVICES AND TECHNOLOGY.
FINANCIAL SERVICES INCLUDES U.S. AND OVERSEAS INSURANCE COMPANIES, WHILE
TECHNOLOGY INCLUDES U.S. SOFTWARE AND JAPANESE ELECTRONIC AND COMPUTER
HARDWARE COMPANIES.
<PAGE>
LETTER FROM THE CHAIRMAN
- ---------------------------
[Photo of A. Keith Brodkin]
- ---------------------------
A. Keith Brodkin
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still
uncomfortably high. The rapid pace of growth seen in the first quarter slowed
to an annual rate of 3.3% in the second quarter and 3.5% in the third. We
believe economic momentum will carry well into the first quarter of 1998, as
the money supply is increasing at a rapid rate, and it still appears that
Christmas sales could be quite good. Because economic growth continues to be
impressive, markets are likely to continue to focus on the Federal Reserve
Board's willingness to raise interest rates.
The extreme volatility of the U.S. equity market in October was, we believe, the
consequence of overvaluations that had been evident for some months. As a
result, the stock market has been vulnerable to some type of correction and has
been impacted in the near term by chaotic market conditions in the Pacific Rim.
In the face of all this, however, the equity market continues to exhibit
surprising strength, much of it the result of continued gains in corporate
earnings, a trend that could be an important indicator of the market's future
direction. Certainly the situation in Southeast Asia bears close scrutiny
because it appears to be clearly deflationary and raises the prospect of trade
wars developing throughout the area. We are not convinced that U.S. markets have
escaped totally from October's volatility. Thus, while the near-term outlook for
profits is generally favorable, we believe equity valuations have risen to a
point where a cautious investment approach seems warranted, with a need for
particular attention to be paid to the effect of Pacific Rim volatility on the
earnings of U.S. companies.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
November 14, 1997
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
- ----------------------------
[Photo of David R. Mannheim]
- ----------------------------
David R. Mannheim
For the 12 months ended October 31, 1997, Class A shares of the Fund provided
a total return of 20.81%, Class B shares 19.74%, Class C shares 19.86%, and
Class I shares 20.76%. These returns assume the reinvestment of distributions
but exclude the effects of any sales charges and compare to a 17.25% return
for the Morgan Stanley Capital International World Index (the MSCI), a broad,
unmanaged index of global equities.
Q. WHY DO YOU THINK THE FUND OUTPERFORMED ITS BENCHMARK INDEX THIS YEAR?
A. I think it's mostly the result of good stock selection. Some of the markets
generally had strong performance in local currency terms, but we've been
able to find companies in a variety of markets that have done well. Over
the past 12 months, the United States was up 32% (as measured by the
Standard & Poor's 500 Composite Index, a popular, unmanaged index of common
stock total return performance). Europe was up 36%, but about 10% of that
was lost in currency translation, so in dollar terms it was only up 26%.
The Pacific Rim was down significantly, about 20% in dollar terms, with
Japan being down 18%. Hong Kong, because of the turmoil in October, was
also down 18%, even though it was up for most of the year. Australia was
down 7% in dollar terms because its currency was weak, while Malaysia was
down 57% and Singapore was down 27%. Those are the five Pacific Rim markets
in the MSCI, and they were all down significantly. We were underweighted in
Japan, so that helped, but we were overweighted in the other markets.
Q. HAS THIS CURRENCY ENVIRONMENT BEEN MORE DIFFICULT THAN IN PREVIOUS YEARS?
A. Not really. We're primarily bottom-up investors. We try and pick companies
that have good franchises, that can continue to increase earnings
regardless of the state of the economy, and that have strong balance sheets
which are not overexposed to foreign currency debt. A business should
generate free cash and should trade at attractive valuations. We follow
this investment model regardless of the environment and, even though the
markets moved dramatically during the last several weeks of the fiscal
year, we haven't made that many changes. We've sold some things in Asia,
but we also bought some things that looked like good opportunities. We
probably have less exposure in Asia now because the markets themselves have
come down but, in Japan, we've actually added what we see as attractive
companies.
Q. IN GENERAL, HOW WOULD YOU CHARACTERIZE THE INVESTMENT ENVIRONMENT
FOR THE PAST YEAR, PARTICULARLY AS IT RELATES TO THE FUND?
A. It's been a two-tiered market. Europe, the United States, and even Latin
America did reasonably well, while Asia didn't. However, in the short term
-- say on a monthly or quarterly basis -- even good companies can get
caught up in a local market move. We view that as an opportunity if we
think the business itself isn't being compromised and that its growth
prospects haven't changed. We don't pick countries, but we do tend to move
to specific places sometimes if we think more value can be found there.
Q. LET'S TALK ABOUT SOME OF THE MAJOR MARKETS IN WHICH THE FUND
IS INVESTED.
A. We have 40% of the Fund's equity assets in the Americas, 40% in Europe, and
20% in Asia/Pacific. Of the 40% in the Americas, 35% of that is in the United
States. That is by far the Fund's biggest market, but it's still
underweighted compared to the MSCI's U.S. weighting. This is just a result of
company selection. We actually had less money in the United States at the
beginning of 1997, but we then bought some technology companies like IBM and
Computer Sciences Corp. We have a little over 2% in Canada, and the rest in
Latin America.
Q. WHAT'S IN LATIN AMERICA?
A. We're in four or five countries, and our holdings are mainly utilities,
one in each place. For instance, our Chilean holding is an electricity
distribution company, while our Venezuelan and Peruvian holdings
are both phone companies.
Q. WHAT ABOUT EUROPE?
A. The biggest weighting is in the United Kingdom, which is at 14% and has come
down slightly over the past six months as we've sold some names. Our three
largest British holdings have been in the Fund for some time and include
British Aerospace, which we've had for about a year; ASDA, which we've had
for a number of years; and PowerGen. We also own British Petroleum, Tomkins,
Carlton Communications, and Lloyds Group. The second-biggest country
weighting is in the Netherlands, at about 4% of the portfolio. After that,
it's spread among a number of countries, including Germany, Sweden, Portugal,
and France. While our selections are company oriented, recently we've bought
or added to some specialty chemical holdings in Europe, such as Henkel in
Germany, Ciba Specialty Chemicals in Switzerland, and Akzo Nobel, a Dutch
chemical company. Over the past quarter, we added to all three of these
positions based on their attractive valuations and improving fundamentals.
Q. TWO OF THE FUND'S LARGEST SECTORS ARE FINANCIAL SERVICES AND TECHNOLOGY.
COULD YOU TALK ABOUT WHY YOU LIKE THESE INDUSTRIES?
A. Financial services companies comprise about 18% of the Fund, but that's
down from about 21% at the end of September, and it's also under the 21%
weighting for this sector in the MSCI. We tend to own a fair number of
insurance companies, both in the United States and abroad, although we
don't have very much bank exposure. As for technology, most of it is either
in the United States or Japan. In the United States, the biggest holdings
are Computer Associates, a software company; Computer Sciences Corp., a
computer services and consulting company; and IBM. In Japan we have Sony,
which is involved in the consumer electronics, software, music, and film
(Columbia Pictures) industries. In addition, we own Canon, which makes
printers, copiers, and other office equipment, and TDK and Rohm, both of
which supply components to a variety of technology-based industries.
Q. ONE OF THE BIGGEST STORIES IN INTERNATIONAL MARKETS HAS BEEN SOUTHEAST
ASIA, WHERE CURRENCIES AND STOCK MARKETS HAVE TUMBLED. WHAT DO YOU SEE FOR
THAT REGION GOING FORWARD?
A. It is clearly a macroeconomic problem, with countries' balance sheets in
disrepair and large current-account deficits prevalent. Although we try to
focus on companies and not markets, this is an environment in which
instability and earnings uncertainty have made it difficult in most cases
to pick stocks. However, in select cases in which we feel confident that a
company's fundamentals will not be impacted by what's going on around it,
or not impacted to a significant degree, we may actually be buying some
companies. While we do not expect our weighting in this region to go
substantially higher in the short term, as things stabilize in these
markets, you could see us going back in over the next 12 months.
Q. DO YOU THINK A RECOVERY IN THESE COUNTRIES WILL BE AS PROLONGED
AS JAPAN'S?
A. No. There's more underlying growth in these markets. They have cheaper
sources of labor, so as they've devalued their currencies, they've become
more competitive. The export part of the Japanese economy has done very
well; it's the domestic part that's caused problems. Japan has an older
population, with more people reaching retirement age. Southeast Asia has a
much younger population and more population growth.
Q. COULD YOU TALK ABOUT SOME STOCKS OR COUNTRIES THAT PERFORMED BETTER THAN
YOU EXPECTED?
A. Some things worked out fairly quickly. Earlier in the year we bought
AmeriSource, a U.S. company in the drug distribution business. We thought
it would grow by 20% annually, and it was trading for about 17 times its
earnings. Then, after we'd owned it for a month or so, the company got a
takeover offer from McKesson. The deal is awaiting approval from
regulators, but we still own it because we think it's a good combination
with strong growth prospects. I'm also pleased with companies like Sony and
Canon, both of which have performed well in a poor Japanese market.
Q. NOW, WHAT ABOUT SOME STOCKS THAT DIDN'T DO AS WELL AS YOU WOULD HAVE LIKED?
A. Not surprisingly, it was the Asian holdings. We bought Wing Hang Bank in
the teens, rode it up to the 30s, then saw it go back down to the teens,
which is its current level. Another company, Alsons Cement in the
Philippines, is down over 60% from a year ago. Most of these are small
positions in the Fund, but some Asian stocks have declined substantially.
Q. WHAT KIND OF ENVIRONMENT DO YOU SEE GOING FORWARD, AND HOW MIGHT THIS
AFFECT SOME OF YOUR INVESTMENT DECISIONS?
A. The overall environment appears to be one of low inflation. The currency
crisis in Asia could add to that by bringing excess capacity to that part
of the world. This means inflation and interest rates should stay low,
which should support valuations. We think we'll see slower growth on a
global basis, including in the United States. In Europe, we think
underlying growth is accelerating on the continent and may exceed U.S.
growth in 1998. On a price-to-earnings basis, Europe may be slightly
cheaper than the United States, but on a cash-flow basis Europe is about
20% cheaper, so we're finding more value in Europe. Japan is somewhat
impacted by what's going on in Asia, but the problem there is the slow
domestic economy. And, as I mentioned, although it's a little early to be
investing more in Southeast Asia, as opportunities come up I think we'll
have more money in that region over the next year.
/s/ David R. Mannheim
David R. Mannheim
Portfolio Manager
<PAGE>
PORTFOLIO MANAGER'S PROFILE
DAVID R. MANNHEIM JOINED MFS IN 1988 AS A RESEARCH SPECIALIST AND WAS
NAMED INVESTMENT OFFICER IN 1990, ASSISTANT VICE PRESIDENT - INVESTMENTS
IN 1991, VICE PRESIDENT - INVESTMENTS IN 1992, AND SENIOR VICE PRESIDENT
IN 1997. A GRADUATE OF AMHERST COLLEGE AND OF THE MASSACHUSETTS
INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, HE HAS MANAGED
MFS(R) WORLD EQUITY FUND SINCE 1992.
PORTFOLIO CONCENTRATION AS OF OCTOBER 31, 1997
<TABLE>
TOP 10 HOLDINGS
<S> <C>
AKZO NOBEL N.V. COMPUTER ASSOCIATES INTERNATIONAL, INC.
Diversified Dutch chemical company U.S. computer software company
AMERISOURCE HEALTH CORP. COMPUTER SCIENCES CORP.
U.S. wholesale pharmaceutical distributor U.S. computer services and consulting company
ASDA GROUP PLC FEDERAL HOME LOAN MORTGAGE CORP.
British food retailer U.S. government-chartered mortgage banker
BRITISH AEROSPACE PLC HILTON HOTELS CORP.
British defense and aircraft company U.S. hotel company
CaNADIAN NATIONAL RAILWAY CO. RITE AID CORP.
Canadian railway/transportation company U.S. drug store chain
</TABLE>
LARGEST SECTORS
Financial Services 17.7%
Technology 11.5%
Leisure 9.7%
Health Care 9.2%
Retailing 8.8%
Other Sectors 43.1%
For a more complete breakdown, refer to the Portfolio of Investments.
<PAGE>
FUND FACTS
OBJECTIVE: THE FUND SEEKS TO PROVIDE CAPITAL APPRECIATION.
COMMENCEMENT OF INVESTMENT OPERATIONS: DECEMBER 29, 1986
CLASS INCEPTION: CLASS A SEPTEMBER 7, 1993
CLASS B DECEMBER 29, 1986
CLASS C JANUARY 3, 1994
CLASS I JANUARY 2, 1997
SIZE: $437.9 MILLION NET ASSETS AS OF OCTOBER 31, 1997
PERFORMANCE SUMMARY
The information below and on the following page illustrates the historical
performance of MFS World Equity Fund -- Class B shares in comparison to
various market indicators. Class B share performance results do not reflect
the deduction of the contingent deferred sales charge (CDSC); 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, based on differences in charges and fees paid by shareholders investing
in different classes. It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-year period ended October 31, 1997)
MFS S&P 500 CONSUMER
WORLD EQUITY COMPOSITE PRICE MSCI
FUND - CLASS B INDEX INDEX - U.S. WORLD INDEX
------------- --------- ------------ -----------
10/92 $10,000 $10,000 $10,000 $10,000
10/93 12,757 11,494 10,275 12,768
10/94 13,511 11,939 10,543 13,811
10/95 14,736 15,096 10,839 15,196
10/96 17,058 18,733 11,164 17,754
10/97 20,424 24,748 11,396 20,817
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended October 31, 1997)
MFS S&P 500 CONSUMER
WORLD EQUITY COMPOSITE PRICE MSCI
FUND - CLASS B INDEX INDEX - U.S. WORLD INDEX
------------- --------- ------------ -----------
10/87 $10,000 $10,000 $10,000 $10,000
10/89 12,559 14,511 10,893 13,771
10/91 13,603 17,922 11,917 14,313
10/93 17,706 22,651 12,637 17,421
10/95 20,453 29,748 13,331 20,735
10/97 28,347 48,770 14,016 28,404
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF OCTOBER 31, 1997
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS World Equity Fund (Class A)
including 5.75% sales charge (SEC results) +13.83% +13.55% +15.02% +10.88%
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Equity Fund (Class A) at net asset value +20.81% +15.81% +16.39% +11.54%
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Equity Fund (Class B) with CDSC
(SEC results) +15.74% +14.00% +15.25% +11.10%
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Equity Fund (Class B) at net asset value +19.74% +14.77% +15.48% +11.10%
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Equity Fund (Class C) with CDSC
(SEC results) +18.87% +14.88% +15.56% +11.14%
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Equity Fund (Class C) at net asset value +19.86% +14.88% +15.56% +11.14%
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Equity Fund (Class I) at net asset value +20.76% +15.09% +15.67% +11.20%
- -----------------------------------------------------------------------------------------------------------------------------------
Average global fund* +16.50% +12.44% +14.19% +11.71%
- -----------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International (MSCI)
World Index+ +17.25% +14.66% +15.79% +11.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index+ +32.12% +27.51% +19.87% +17.17%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index+# + 2.09% + 2.63% + 2.65% + 3.43%
- -----------------------------------------------------------------------------------------------------------------------------------
*Source: Lipper Analytical Services, Inc.
+Source: CDA/Wiesenberger.
#The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
</TABLE>
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.
Class A share SEC results include the maximum 5.75% sales charge. Class B
share SEC results reflect the applicable contingent deferred sales charge
(CDSC), which declines over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%.
Class C shares have no initial sales charge but, along with Class B shares,
have higher annual fees and expenses than Class A shares. Class C share
purchases are subject to a 1% CDSC if redeemed within 12 months of purchase.
Class I shares have no sales charge or Rule 12b-1 fees and are only available
to certain institutional investors.
Class A and Class C share results include the performance and the operating
expenses (e.g., Rule 12b-1 fees) of the Fund's Class B shares for periods
prior to the inception of Class A and Class C shares. Because operating
expenses attributable to Class A shares are lower than those of Class B
shares, Class A share performance generally would have been higher than Class
B share performance. Operating expenses attributable to Class C shares are not
significantly different from those of Class B shares. The Class B share
performance included within the Class A share SEC performance has been
adjusted to reflect the initial sales charge generally applicable to Class A
shares rather than the CDSC generally applicable to Class B shares. The Class
C share SEC performance has been adjusted to reflect the lower CDSC generally
applicable to Class C shares rather than the CDSC generally applicable to
Class B shares.
Class I share results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of the Fund's Class B shares for periods prior to the
inception of Class I shares. Because operating expenses attributable to Class
B shares are greater than those of Class I shares, Class I share performance
generally would have been higher than Class B share performance. The Class B
share performance included within the Class I share performance has been
adjusted to reflect the fact that Class I shares have no CDSC.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details.
TAX FORM SUMMARY
IN JANUARY 1998, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY
REPORTING THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE
CALENDAR YEAR 1997.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
THE FUND HAS DESIGNATED $17,041,738 AS A LONG-TERM CAPITAL GAIN.
FOREIGN TAX CREDIT
FOR THE YEAR ENDED OCTOBER 31, 1997, INTEREST AND DIVIDENDS FROM FOREIGN
COUNTRIES WERE $5,178,668 AND TAXES PAID TO FOREIGN COUNTRIES WERE
$568,004.
DIVIDENDS-RECEIVED DEDUCTION
FOR THE YEAR ENDED OCTOBER 31, 1997, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 20.12%.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - October 31, 1997
Stocks - 91.8%
<CAPTION>
- ------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 32.9%
Aerospace - 1.5%
Allied Signal, Inc. 53,900 $ 1,940,400
Lockheed Martin Corp. 47,500 4,515,469
------------
$ 6,455,869
- ------------------------------------------------------------------------------------------------
Business Machines - 1.4%
International Business Machines Corp. 63,000 $ 6,177,937
- ------------------------------------------------------------------------------------------------
Business Services - 2.7%
Computer Sciences Corp.* 92,000 $ 6,526,250
H&R Block, Inc. 144,500 5,346,500
------------
$ 11,872,750
- ------------------------------------------------------------------------------------------------
Chemicals - 2.0%
Air Products & Chemicals, Inc. 59,000 $ 4,484,000
Praxair, Inc. 94,500 4,116,656
------------
$ 8,600,656
- ------------------------------------------------------------------------------------------------
Computer Software - Systems - 3.6%
Computer Associates International, Inc. 143,500 $ 10,699,719
Synopsys, Inc.* 131,000 5,092,625
------------
$ 15,792,344
- ------------------------------------------------------------------------------------------------
Entertainment - 1.1%
Viacom, Inc., "B"* 152,251 $ 4,605,593
- ------------------------------------------------------------------------------------------------
Financial Institutions - 1.6%
Federal Home Loan Mortgage Corp. 182,000 $ 6,893,250
- ------------------------------------------------------------------------------------------------
Forest and Paper Products - 1.1%
Kimberly-Clark Corp. 94,000 $ 4,882,125
- ------------------------------------------------------------------------------------------------
Insurance - 4.7%
CIGNA Corp. 38,700 $ 6,008,175
Hartford Financial Services Group, Inc. 27,000 2,187,000
Nationwide Financial Services, Inc., "A" 116,000 3,530,750
Reliastar Financial Corp. 144,000 5,382,000
Transamerica Corp. 35,000 3,532,812
------------
$ 20,640,737
- ------------------------------------------------------------------------------------------------
Medical and Health Products - 0.8%
Bristol-Myers Squibb Co. 40,000 $ 3,510,000
- ------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 3.1%
AmeriSource Health Corp., "A"* 140,560 $ 8,345,750
United Healthcare Corp. 116,000 5,372,250
------------
$ 13,718,000
- ------------------------------------------------------------------------------------------------
Oils - 1.0%
Mobil Corp. 58,000 $ 4,223,125
- ------------------------------------------------------------------------------------------------
Printing and Publishing - 0.3%
Gannett Co., Inc. 27,000 $ 1,419,188
- ------------------------------------------------------------------------------------------------
Railroads - 1.3%
Burlington Northern Santa Fe 60,500 $ 5,747,500
- ------------------------------------------------------------------------------------------------
Restaurants and Lodging - 1.6%
Hilton Hotels Corp. 231,000 $ 7,117,687
- ------------------------------------------------------------------------------------------------
Stores - 3.2%
Federated Department Stores, Inc.* 65,000 $ 2,860,000
Longs Drug Stores Corp. 57,050 1,429,816
Rite Aid Corp. 165,000 9,796,875
------------
$ 14,086,691
- ------------------------------------------------------------------------------------------------
Supermarkets - 1.1%
Safeway, Inc.* 86,000 $ 4,998,750
- ------------------------------------------------------------------------------------------------
Utilities - Electric - 0.8%
Calenergy, Inc.* 96,000 $ 3,288,000
- ------------------------------------------------------------------------------------------------
Total U.S. Stocks $144,030,202
- ------------------------------------------------------------------------------------------------
Foreign Stocks - 58.9%
Argentina - 0.1%
Mirgor Sacifia, ADR (Automotive)*## 97,600 $ 317,200
- ------------------------------------------------------------------------------------------------
Australia - 2.0%
QBE Insurance Group Ltd. (Insurance)* 1,206,328 $ 5,621,073
Seven Network Ltd. (Entertainment) 909,000 3,248,376
------------
$ 8,869,449
- ------------------------------------------------------------------------------------------------
Austria - 0.4%
Austria Tabak AG (Tobacco) 40,500 $ 1,675,885
- ------------------------------------------------------------------------------------------------
Canada - 2.6%
Canadian National Railway Co. (Railroads) 163,000 $ 8,791,813
Legacy Hotel Real Estate Investment Trust (Real
Estate) 371,600 2,586,596
------------
$ 11,378,409
- ------------------------------------------------------------------------------------------------
Chile - 0.9%
Chilectra S.A., ADR (Utilities - Electric) 158,000 $ 4,153,346
- ------------------------------------------------------------------------------------------------
Czechoslovakia - 0.4%
Tabak AS (Tobacco) 6,407 $ 1,608,761
- ------------------------------------------------------------------------------------------------
Finland - 1.4%
Huhtamaki Oy Group (Conglomerate) 61,200 $ 2,515,893
TT Tieto Oy (Computer Software - Systems) 32,100 3,593,307
------------
$ 6,109,200
- ------------------------------------------------------------------------------------------------
France - 2.1%
TV Francaise (Broadcasting) 41,000 $ 3,809,499
Union des Assurances Federales S.A. (Insurance) 49,500 5,524,267
------------
$ 9,333,766
- ------------------------------------------------------------------------------------------------
Germany - 1.7%
adidas AG (Apparel and Textiles) 27,000 $ 3,902,955
Pfleiderer AG (Construction)* 103,650 1,987,726
Volkswagen AG (Automotive) 2,700 1,594,032
------------
$ 7,484,713
- ------------------------------------------------------------------------------------------------
Greece - 0.5%
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 100,658 $ 2,108,002
- ------------------------------------------------------------------------------------------------
Hong Kong - 1.4%
Asia Satellite Telecommunications Holdings Ltd.
(Telecommunications) 100,500 $ 241,824
Li & Fung Ltd. (Wholesale) 1,566,000 1,570,052
Liu Chong Hing Bank (Banks and Credit Cos.) 645,000 851,100
Peregrine Investment Holdings (Finance) 902,000 886,830
Wing Hang Bank Ltd. (Banks and Credit Cos.) 955,100 2,458,796
------------
$ 6,008,602
- ------------------------------------------------------------------------------------------------
Indonesia - 1.0%
Gulf Indonesia Resources Ltd. (Oil Services)* 38,100 $ 800,100
PT Indosat (Telecommunications) 468,000 1,059,192
PT Indosat, ADR (Telecommunications) 96,000 2,274,000
------------
$ 4,133,292
- ------------------------------------------------------------------------------------------------
Italy - 1.3%
ERG S.p.A. (Oils)* 500,600 $ 2,063,416
Instituto Nazionale delle Assicurazioni (Insurance) 714,000 1,148,961
Telecom Italia S.p.A., Saving Shares
(Telecommunications) 1,281,000 2,617,373
------------
$ 5,829,750
- ------------------------------------------------------------------------------------------------
Japan - 12.6%
Bridgestone Corp. (Tire and Rubber) 137,000 $ 2,965,862
Canon, Inc. (Office Equipment) 218,000 5,300,250
DDI Corp. (Telecommunications) 462 1,546,411
Eisai Co. Ltd. (Pharmaceuticals) 218,000 3,430,641
Fuji Photo Film Co. (Photographic Products) 86,000 3,122,065
Kinki Coca-Cola Bottling Co. (Beverages) 89,000 1,067,111
Kirin Beverage Corp. (Beverages) 155,000 2,581,182
Nippon Broadcasting (Broadcasting) 43,000 2,631,557
Nitto Denko Corp. (Industrial Goods and Services) 208,000 3,758,201
Osaka Sanso Kogyo Ltd. (Chemicals) 484,000 967,194
Rohm Co. (Electronics) 32,000 3,170,691
Sankyo Co. Ltd. (Pharmaceuticals) 119,000 3,933,639
Sony Corp. (Electronics) 74,600 6,205,279
Takeda Chemical Industries (Pharmaceuticals) 151,000 4,123,897
TDK Corp. (Electronics) 43,000 3,573,189
Tokyo Broadcasting System, Inc. (Broadcasting) 211,000 3,619,151
Ushio, Inc. (Electronics) 272,000 2,966,861
------------
$ 54,963,181
- ------------------------------------------------------------------------------------------------
Malaysia - 0.7%
New Straits Times Press Berhad (Printing and
Publishing) 195,000 $ 424,292
Tanjong PLC (Entertainment) 1,399,000 2,460,239
------------
$ 2,884,531
- ------------------------------------------------------------------------------------------------
Mexico - 0.2%
TV Azteca, S.A. de C V (Broadcasting)* 55,500 $ 1,061,437
- ------------------------------------------------------------------------------------------------
Netherlands - 3.8%
Akzo Nobel N.V. (Chemicals) 39,500 $ 6,947,532
IHC Caland N.V. (Transportation)* 35,555 2,182,656
Koninklijke Ahrend Groep N.V. (Office Furnishings)* 104,024 3,460,336
Royal Dutch Petroleum Co. (Oils) 77,200 4,076,319
------------
$ 16,666,843
- ------------------------------------------------------------------------------------------------
Peru - 0.4%
Telefonica del Peru S.A., ADR (Telecommunications) 95,000 $ 1,876,250
- ------------------------------------------------------------------------------------------------
Philippines - 0.1%
Alsons Cement Corp. (Building Materials)## 5,331,500 $ 244,424
- ------------------------------------------------------------------------------------------------
Poland - 0.4%
Bank Handlowy Warsza (Banks and Credit Cos.)*+ 27,500 $ 369,828
KGHM Polska Miedz S.A. (Metals and Minerals)*## 142,500 1,396,500
------------
$ 1,766,328
- ------------------------------------------------------------------------------------------------
Portugal - 2.4%
Banco Espirito Santo e Comercial de Lisboa (Banks
and
Credit Cos.) 89,800 $ 2,609,398
Banco Totta E Acores (Banks and Credit Cos.) 203,000 3,986,266
Telecel - Comunicacaoes Pessoais S.A.
(Telecommunications)* 44,000 3,982,474
------------
$ 10,578,138
- ------------------------------------------------------------------------------------------------
Singapore - 1.1%
Hong Leong Finance Ltd. (Finance)+ 1,340,000 $ 1,830,368
Mandarin Oriental International Ltd. (Restaurants
and Lodgings)* 2,074,335 1,638,725
Overseas Union Bank (Finance) 445,000 1,484,276
------------
$ 4,953,369
- ------------------------------------------------------------------------------------------------
Spain - 1.5%
Acerinox S.A. (Iron and Steel) 20,000 $ 2,982,227
Repsol S.A. (Oils) 86,000 3,599,808
------------
$ 6,582,035
- ------------------------------------------------------------------------------------------------
Sweden - 3.2%
Astra AB (Pharmaceuticals) 285,333 $ 4,414,975
Munters AB (Consumer Goods and Services)* 11,700 118,609
Skandia Forsakrings AB (Insurance) 81,500 3,804,906
Sparbanken Sverige AB (Banks and Credit Companies) 252,000 5,714,362
------------
$ 14,052,852
- ------------------------------------------------------------------------------------------------
Switzerland - 2.2%
Ciba Specialty Chemicals AG (Chemicals)* 55,316 $ 5,428,943
Novartis AG (Pharmaceuticals) 2,776 4,345,302
------------
$ 9,774,245
- ------------------------------------------------------------------------------------------------
United Kingdom - 13.9%
Anglo Irish Bank Corp. PLC (Banks and Credit Cos.)* 2,850,000 $ 4,777,743
ASDA Group PLC (Supermarkets) 2,929,000 7,610,777
Avis Europe PLC (Auto Rental)## 973,000 2,430,396
British Aerospace PLC (Aerospace and Defense)* 300,000 7,956,199
British Petroleum PLC (Oils)* 375,459 5,513,718
Capital Radio PLC (Broadcasting) 117,200 929,323
Carlton Communicatons PLC (Broadcasting) 586,400 4,841,479
Corporate Services Group PLC (Business Services) 736,000 2,763,782
Grand Metropolitan PLC (Food and Beverage Products) 371,000 3,346,063
Jarvis Hotels PLC (Restaurants and Lodging)+ 709,000 1,711,538
Kwik-Fit Holdings PLC (Automotive Repair Centers) 674,900 3,660,089
Lloyds TSB Group PLC (Banks and Credit Cos.)* 375,511 4,689,827
PowerGen PLC (Utilities - Electric)* 526,491 5,851,704
Tomkins PLC (Diversified Operations) 943,000 4,837,389
------------
$ 60,920,027
- ------------------------------------------------------------------------------------------------
Venezuela - 0.6%
Compania Anonima Nacional Telefonos de Venezuela,
ADR (Telecommunications) 58,000 $ 2,537,500
- ------------------------------------------------------------------------------------------------
Total Foreign Stocks $257,871,535
- ------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $328,979,067) $401,901,737
- ------------------------------------------------------------------------------------------------
Preferred Stocks - 1.8%
- ------------------------------------------------------------------------------------------------
Germany - 1.8%
Henkel Kgaa (Chemicals) 103,000 $ 5,340,962
Wella AG (Cosmetics) 3,600 2,500,811
------------
$ 7,841,773
- ------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $8,078,699) $ 7,841,773
- ------------------------------------------------------------------------------------------------
Warrants
- ------------------------------------------------------------------------------------------------
Hong Kong
Peregrine Investment Holdings (Finance)*
(Identified Cost, $9,538) 76,900 $ 2,487
- ------------------------------------------------------------------------------------------------
Short-Term Obligations - 5.4%
- ------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
due 11/03/97 - 11/17/97 $ 10,315 $ 10,306,674
Federal National Mortgage Assn.,
due 11/10/97 - 11/14/97 13,315 13,292,553
- ------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 23,599,227
- ------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $360,666,531) $433,345,224
Other Assets, Less Liabilities - 1.0% 4,528,930
- ------------------------------------------------------------------------------------------------
Net Assets - 100.0% $437,874,154
- ------------------------------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
+Restricted security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
OCTOBER 31, 1997
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $360,666,531) $433,345,224
Cash 38,269
Receivable for Fund shares sold 3,813,472
Receivable for investments sold 7,559,903
Dividends receivable 540,997
Net receivable for foreign currency exchange contracts
subject to master netting agreements 15,233
Other assets 3,013
------------
Total assets $445,316,111
------------
Liabilities:
Payable for investments purchased $ 6,423,253
Payable for Fund shares reacquired 646,866
Payable to affiliates -
Management fee 11,939
Administrative fee 179
Shareholder servicing agent fee 1,548
Distribution and service fee 104,623
Accrued expenses and other liabilities 253,549
------------
Total liabilities $ 7,441,957
------------
Net assets $437,874,154
============
Net assets consist of:
Paid-in capital $341,404,966
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 72,691,944
Accumulated undistributed net realized gain on investments
and foreign currency transactions 22,742,491
Accumulated undistributed net investment income 1,034,753
------------
Total $437,874,154
============
Shares of beneficial interest outstanding 21,884,151
==========
Class A shares:
Net asset value per share
(net assets of $167,390,158 / 8,332,541 shares of
beneficial interest outstanding) $20.09
======
Offering price per share (100 / 94.25) $21.32
======
Class B shares:
Net asset value and offering price per share
(net assets of $253,353,751 / 12,686,105 shares of
beneficial interest outstanding) $19.97
======
Class C shares:
Net asset value and offering price per share
(net assets of $16,658,403 / 842,074 shares of beneficial
interest outstanding) $19.78
======
Class I shares:
Net asset value, offering price and redemption price per share
(net assets of $471,842 / 23,431 shares of beneficial
interest outstanding) $20.14
======
On sales of $50,000 or more, the offering price of Class A
shares is reduced. A contingent deferred sales charge may be
imposed on redemptions of Class A, Class B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 6,710,843
Interest 1,344,378
Foreign taxes withheld (573,831)
------------
Total investment income $ 7,481,390
------------
Expenses -
Management fee $ 3,683,876
Trustees' compensation 44,750
Shareholder servicing agent fee 413,156
Shareholder servicing agent fee (Class A) 24,975
Shareholder servicing agent fee (Class B) 71,652
Shareholder servicing agent fee (Class C) 2,035
Distribution and service fee (Class A) 323,418
Distribution and service fee (Class B) 2,231,998
Distribution and service fee (Class C) 116,729
Administrative fee 39,944
Custodian fee 297,401
Postage 76,509
Printing 75,874
Auditing fees 43,950
Legal fees 5,471
Miscellaneous 349,349
------------
Total expenses $ 7,801,087
Fees paid indirectly (37,288)
------------
Net expenses $ 7,763,799
------------
Net investment loss $ (282,409)
------------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) -
Investment transactions $ 23,430,277
Foreign currency transactions 784,761
------------
Net realized gain on investments and foreign currency
transactions $ 24,215,038
------------
Change in unrealized appreciation -
Investments $ 37,693,899
Translation of assets and liabilities in foreign currencies 4,324
------------
Net unrealized gain on investments $ 37,698,223
------------
Net realized and unrealized gain on investments and
foreign currency $ 61,913,261
------------
Increase in net assets from operations $ 61,630,852
============
See notes to financial statements
<PAGE>
</TABLE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
- ---------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (282,409) $ (493,793)
Net realized gain on investments and foreign currency
transactions 24,215,038 29,747,702
Net unrealized gain on investments and foreign currency
translation 37,698,223 7,027,936
------------- -------------
Increase in net assets from operations $ 61,630,852 $ 36,281,845
------------- -------------
Distributions declared to shareholders -
From net realized gain on investments and foreign currency
transactions (Class A) $ (10,136,119) $ (3,152,132)
From net realized gain on investments and foreign currency
transactions (Class B) (18,280,750) (6,611,169)
From net realized gain on investments and foreign currency
transactions (Class C) (828,520) (153,959)
------------- -------------
Total distributions declared to shareholders $ (29,245,389) $ (9,917,260)
------------- -------------
Net increase in net assets from Fund share transactions $ 120,938,001 $ 46,828,403
------------- -------------
Total increase in net assets $ 153,323,464 $ 73,192,988
Net assets:
At beginning of period 284,550,690 211,357,702
------------- -------------
At end of period (including accumulated undistributed net
investment income of $1,034,753 and accumulated net
investment loss of $41,430, respectively) $ 437,874,154 $ 284,550,690
============= =============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997 1996 1995 1994 1993*
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $18.45 $16.68 $16.95 $16.56 $15.71
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.08 $ 0.07 $ 0.09 $ 0.03 $ 0.01
Net realized and unrealized gain on
investments and foreign currency
transactions 3.49 2.60 1.37 1.13 0.84
------ ------ ------ ------ ------
Total from investment operations $ 3.57 $ 2.67 $ 1.46 $ 1.16 $ 0.85
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions
$(1.93) $(0.90) $(1.73) $(0.70) $ --
In excess of net investment income and
foreign currency transactions -- -- -- (0.07) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders
$(1.93) $(0.90) $(1.73) $(0.77) $ --
------ ------ ------ ------ ------
Net asset value - end of period $20.09 $18.45 $16.68 $16.95 $16.56
====== ====== ====== ====== ======
Total return(+) 20.81% 16.72% 10.16% 7.03% 5.41%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.63% 1.65% 1.61% 1.54% 1.68%+
Net investment income 0.42% 0.38% 0.58% 0.15% 0.94%+
Portfolio turnover 65% 83% 73% 99% 70%
Average commission rate### $ 0.0199 $0.0200 $ -- $ -- $ --
Net assets at end of period (000 omitted) $167,390 $94,909 $52,164 $16,968 $2,076
* For the period from the commencement of the Fund's offering of Class A shares, September 7, 1993, through October 31,
1993.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to October 31, 1993, 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.
### Average commission rate is calculated for fiscal years beginning on or after September 1, 1995.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
----------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993**
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 18.36 $ 16.55 $ 16.78 $ 16.53 $ 13.50
-------- ------- ------- ------- -------
Income from investment operations# -
Net investment loss $ (0.07) $ (0.08) $ (0.05) $ (0.17) $ (0.10)
Net realized and unrealized gain on investments and
foreign currency transactions 3.46 2.60 1.37 1.13 3.28
-------- ------- ------- ------- -------
Total from investment operations $ 3.39 $ 2.52 $ 1.32 $ 0.96 $ 3.18
-------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net realized gain on investments and foreign currency
transactions $ (1.78) $ (0.71) $ (1.55) $ (0.70) $ (0.15)
In excess of net investment income and foreign currency
transactions -- -- -- (0.01) --
-------- ------- ------- ------- -------
Total distributions declared to shareholders $ (1.78) $ (0.71) $ (1.55) $ (0.71) $ (0.15)
-------- ------- ------- ------- -------
Net asset value - end of period $ 19.97 $ 18.36 $ 16.55 $ 16.78 $ 16.53
======== ======= ======= ======= =======
Total return 19.74% 15.75% 9.07% 5.91% 23.80%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.39% 2.45% 2.55% 2.58% 2.66%+
Net investment loss (0.36)% (0.44)% (0.35)% (1.01)% (0.71)%+
Portfolio turnover 65% 83% 73% 99% 70%
Average commission rate### $ 0.0199 $0.0200 $ -- $ -- $ --
Net assets at end of period (000 omitted) $253,354 $182,139 $156,286 $175,438 $145,575
** For the eleven months ended October 31, 1993.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to October 31, 1993, 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.
### Average commission rate is calculated for fiscal years beginning on or after September 1, 1995.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 12.40 $ 12.94 $ 12.96 $ 11.21 $ 10.12
-------- ------- ------- ------- -------
Income from investment operations -
Net investment income (loss) $ (0.04) $ 0.17 $ 0.13 $ 0.09 $ 0.14
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 1.17 (0.37) 0.14 2.03 0.95
-------- ------- ------- ------- -------
Total from investment operations $ 1.13 $ (0.20) $ 0.27 $ 2.12 $ 1.09
-------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ -- $ (0.21) $ --
From net realized gain on investments and
foreign currency transactions (0.03) (0.15) (0.29) (0.12) --
From paid in capital -- (0.19) -- (0.04) --
-------- ------- ------- ------- -------
Total distributions declared to shareholders $ (0.03) $ (0.34) $ (0.29) $ (0.37) $ --
-------- ------- ------- ------- -------
Net asset value - end of period $ 13.50 $ 12.40 $ 12.94 $ 12.96 $ 11.21
======== ======= ======= ======= =======
Total return 9.13% (1.57)% 2.02% 19.58% 10.77%
Ratios (to average net assets)/Supplemental data:
Expenses 2.91% 2.88% 2.93% 3.05% 2.48%
Net investment income (loss) (0.31)% 1.35% 1.07% 0.77% 1.29%
Portfolio turnover 110% 160% 173% 190% 276%
Net assets at end of period (000 omitted) $101,550 $82,890 $81,505 $50,827 $42,806
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
---------------------------------- OCTOBER 31,
1997 1996 1995 1994*** 1997****
- -------------------------------------------------------------------------------------------------------------------------------
CLASS C CLASS I
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 18.24 $ 16.53 $ 16.80 $ 16.75 $ 17.57
-------- ------- ------- ------- -------
Income from investment operations# -
Net investment income (loss) $ (0.06) $ (0.06) $ (0.05) $ (0.09) $ 0.13
Net realized and unrealized gain on investments and foreign
currency transactions 3.44 2.57 1.37 0.14 2.44
-------- ------- ------- ------- -------
Total from investment operations $ 3.38 $ 2.51 $ 1.32 $ 0.05 $ 2.57
-------- ------- ------- ------- -------
Less distributions declared to shareholders
from net realized gain on investments and foreign currency
transactions $ (1.84) $ (0.80) $ (1.59) $ -- $ --
-------- ------- ------- ------- -------
Net asset value - end of period $ 19.78 $ 18.24 $ 16.53 $ 16.80 $ 20.14
======== ======= ======= ======= =======
Total return 19.86% 15.82% 9.20% 0.30%++ 14.63%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.36% 2.39% 2.49% 2.55%+ 1.38%+
Net investment income (loss) (0.33)% (0.34)% (0.31)% (0.72)%+ 0.77%+
Portfolio turnover 65% 83% 73% 99% 65%
Average commission rate### $ 0.0199 $0.0200 $ -- $ -- $0.0199
Net assets at end of period (000 omitted) $ 16,658 $ 7,503 $ 2,908 $ 1,440 $ 472
*** For the period from the commencement of the Fund's offering of Class C shares, January 3, 1994, through October 31, 1994.
**** For the period from the commencement of the Fund's offering of Class I shares, January 2, 1997, through October 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to October 31, 1993, 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.
### Average commission rate is calculated for fiscal years beginning on or after September 1, 1995.
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS World Equity Fund (the Fund) is a diversified series of MFS Series Trust
VI (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 the changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Debt securities (other
than short-term obligations which mature in 60 days of less), including listed
issues and forward contracts, are valued on the basis of valuations furnished
by dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data, without exclusive reliance upon exchange or over-the-counter
prices. Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Non-U.S. dollar denominated
short-term obligations are valued at amortized cost as calculated in the base
currency and translated into U.S. dollars at the closing daily exchange rate.
Securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Trustees.
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 gain and losses
on investments that results from fluctuations in foreign currency exchange
rates is not separately disclosed.
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 counterparts to
meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund will enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. It may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend payments received in additional securities are recorded on the
ex-dividend date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement which provides for custody fees to be reduced based on a formula
developed to measure 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. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended October 31, 1997, $1,358,592 was reclassified
from accumulated net realized gain on investments 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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares. The classes of shares differ in their respective
distribution and service fees. All shareholders bear the common expenses of
the Fund pro rata based on average daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 1.00%
of average daily net assets.
Administrator - Effective March 1, 1997, 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, provided that the administrative fee is not assessed
on Fund assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
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 its independent Trustees and Mr. Bailey. Included
in Trustees' compensation is a net periodic pension expense of $11,126 for the
year ended October 31, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$94,044 for the year ended October 31, 1997, 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 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 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets
attributable to Class A shares, commissions to dealers and payments to MFD
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. MFD retains the
service fee for accounts not attributable to a securities dealer which
amounted to $44,535 for the year ended October 31, 1997. Payment of the 0.10%
per annum Class A distribution fee will commence on such date as the Trustees
of the Fund may determine. Fees incurred under the distribution plan during
the year ended October 31, 1997, were 0.25% of average daily net assets
attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be additional consideration for
services rendered by the dealer with respect to Class B and Class C shares. MFD
retains the service fee for accounts not attributable to a securities dealer,
which amounted to $49,695 and $5,244 for Class B and Class C shares,
respectively, for the year ended October 31, 1997. Fees incurred under the
distribution plan during the year ended October 31, 1997, were 1.00% of average
daily net assets attributable to Class B and Class C shares on an annualized
basis.
Purchases over $1 million of Class A shares and certain purchases by
retirement plans are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following such purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class C shares in the event of a shareholder redemption within
12 months of purchases made on or after
April 1, 1996. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the period ended October 31, 1997, were
$6,348, $196,759, and $5,738 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the average daily net assets of each Fund at an effective
annual rate of up to 0.13%. Prior to January 1, 1997, the fee was calculated
as a percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22%, and up to 0.15%
attributable to Class A, Class B, and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$304,892,572 and $222,411,796, respectively.
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 $360,725,274
------------
Gross unrealized appreciation $ 89,452,886
Gross unrealized depreciation (16,832,936)
-----------
Net unrealized appreciation $ 72,619,950
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
Class A Shares
<CAPTION>
YEAR ENDED OCTOBER 31, 1997 YEAR ENDED OCTOBER 31, 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 18,465,899 $ 358,596,432 8,201,319 $ 145,253,452
Shares issued to shareholders
in reinvestment of
distributions 527,190 9,273,215 172,379 2,799,430
Shares transferred to Class I (1,626) (28,569) -- --
Shares reacquired (15,804,320) (307,926,288) (6,355,583) (113,016,532)
----------- ------------- ---------- -------------
Net increase 3,187,143 $ 59,914,790 2,018,115 $ 35,036,350
=========== ============= ========== =============
</TABLE>
<TABLE>
Class B Shares
<CAPTION>
YEAR ENDED OCTOBER 31, 1997 YEAR ENDED OCTOBER 31, 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 9,100,603 $ 175,632,414 7,209,459 $ 125,696,939
Shares issued to shareholders
in reinvestment of
distributions 972,341 17,122,902 381,169 6,206,034
Shares reacquired (7,308,155) (140,432,806) (7,113,969) (124,208,958)
----------- ------------- ---------- -------------
Net increase 2,764,789 $ 52,322,510 476,659 $ 7,694,015
=========== ============= ========== =============
</TABLE>
<TABLE>
Class C Shares
<CAPTION>
YEAR ENDED OCTOBER 31, 1997 YEAR ENDED OCTOBER 31, 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 887,059 $ 17,183,627 381,981 $ 6,695,633
Shares issued to shareholders
in reinvestment of
distributions 39,609 690,382 7,678 124,070
Shares reacquired (495,886) (9,612,687) (154,314) (2,721,665)
----------- ------------- ---------- -------------
Net increase 430,782 $ 8,261,322 235,345 $ 4,098,038
=========== ============= ========== =============
</TABLE>
Class I Shares
PERIOD ENDED OCTOBER 31, 1997*
----------------------------------
SHARES AMOUNT
- -------------------------------------------------------------------
Shares transferred from
Class A 1,626 $ 28,569
Shares sold 22,958 435,115
Shares reacquired (1,153) (24,305)
------ --------
Net increase 23,431 $439,379
====== ========
*For the period from the commencement of the Fund's offering of Class I
shares, January 2, 1997, through October 31, 1997.
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 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 October 31, 1997, was $2,959.
(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 forward foreign currency exchange contracts. The
notional or contractual amounts of these instruments represent the investment
the Fund has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
Forward foreign currency purchases and sales under master netting arrangements
amounted to a net receivable of $126,153 with Deutschebank and a net payable
of $110,920 with Swiss Bank Corp. at October 31, 1997.
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At October 31,
1997, the Fund owned the following restricted securities (consisting of 0.9%
of its net assets). The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers or, if not available, in
good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
DATE OF
DESCRIPTION ACQUISITION SHARES COST VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank Handlowy Warsza 6/18/97 27,500 $ 297,275 $ 369,828
Hong Leong Finance Ltd. 5/16/95 - 9/27/95 1,340,000 4,261,894 1,830,368
Jarvis Hotels PLC 6/21/96 - 7/02/96 709,000 1,888,974 1,711,538
----------
$3,911,734
==========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Series Trust VI and the Shareholders of MFS World
Equity Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS World Equity Fund (a series of
MFS Series Trust VI) as of October 31, 1997, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended October 31, 1997 and 1996, and the financial highlights for
each of the years in the five-year period ended October 31, 1997 and the five-
year period ended November 30, 1992. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at October 31, 1997 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS World Equity
Fund at October 31, 1997, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 5, 1997
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
<TABLE>
MFS(R) World Equity Fund
<S> <C>
Trustees Secretary
A. Keith Brodkin* - Chairman and President Stephen E. Cavan*
Richard B. Bailey* - Private Investor; Former Chairman and Assistant Secretary
Director (until 1991), Massachusetts Financial Services James R. Bordewick, Jr.*
Company; Director, Cambridge Bancorp; Director, Cambridge
Trust Company Custodian
State Street Bank and Trust Company
Marshall N. Cohan - Private Investor
Auditors
Lawrence H. Cohn, M.D. - Chief of Cardiac Surgery, Brigham Deloitte & Touche LLP
and Women's Hospital; Professor of Surgery, Harvard Medical
School Investor Information
For MFS stock and bond market outlooks, call toll free:
The Hon. Sir J. David Gibbons, KBE - Chief Executive 1-800-637-4458 anytime from a touch-tone telephone.
Officer, Edmund Gibbons Ltd.; Chairman, Bank of N.T.
Butterfield & Son Ltd. For information on MFS mutual funds, call your financial
adviser or, for an information kit, call toll free:
Abby M. O'Neill - Private Investor; Director, Rockefeller 1-800-637-2929 any business day from 9 a.m. to 5 p.m.
Financial Services, Inc. (investment advisers) Eastern time (or leave a message anytime).
Walter E. Robb, III - President and Treasurer, Benchmark Investor Service
Advisors, Inc. (corporate financial consultants); President, MFS Service Center, Inc.
Benchmark Consulting Group, Inc. (office services); Trustee, P.O. Box 2281
Landmark Funds (mutual funds) Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive Vice President, Director For general information, call toll free:
and Secretary, Massachusetts Financial Services Company 1-800-225-2606 any business day from 8 a.m. to 8 p.m.
Eastern time.
Jeffrey L. Shames* - President and Director, Massachusetts
Financial Services Company For service to speech- or hearing-impaired, call toll free:
1-800-637-6576 any business day from 9 a.m. to 5 p.m.
J. Dale Sherratt - President, Insight Resources, Inc. Eastern time. (To use this service, your phone must be
(acquisition planning specialists) Ward Smith - Former equipped with a Telecommunications Device for the Deaf.)
Chairman (until 1994), NACCO Industries; Director,
Sundstrand Corporation For share prices, account balances, and exchanges, call toll
free: 1-800-MFS-TALK (1-800-637-8255) anytime from a
Investment Adviser Massachusetts Financial Services Company touch-tone telephone.
500 Boylston Street Boston, MA 02116-3741
World Wide Web
Distributor MFS Fund Distributors, Inc. 500 Boylston Street www.mfs.com
Boston, MA 02116-3741
Portfolio Manager
David R. Mannheim*
Treasurer [Dalbar Logo] For the fourth year in a row, MFS earned a
W. Thomas London* #1 ranking in the DALBAR, Inc. Broker/Dealer
Survey, Main Office Operations Service Quality Category. The
Assistant Treasurers firm achieved a 3.42 overall score on a scale of 1 to 4 in the
Mark E. Bradley* 1997 survey. A total of 111 firms responded, offering input on
Ellen Moynihan* the quality of service they received from 29 mutual fund
James O. Yost* companies nationwide. The survey contained questions about
service quality in 11 categories, including "knowledge of
operations contact," "keeping you informed," and "ease of
doing business" with the firm.
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
-------------
MFS(R) WORLD EQUITY FUND BULK RATE
U.S. POSTAGE
500 Boylston Street PAID
Boston, MA 02116-3741 MFS
-------------
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(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
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