<PAGE>
[LOGO] M F S(SM) Annual Report
INVESTMENT MANAGEMENT August 31, 1997
MFS(R) STRATEGIC GROWTH FUND
[GRAPHIC OMITTED]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
A Discussion with the Portfolio Manager ................................... 2
Portfolio Manager's Profile ............................................... 4
Fund Facts ................................................................ 5
Performance Summary ....................................................... 5
Tax Form Summary .......................................................... 7
Portfolio Concentration ................................................... 8
Portfolio of Investments .................................................. 9
Financial Statements ...................................................... 14
Notes to Financial Statements ............................................. 21
Independent Auditors' Report .............................................. 27
The MFS Family of Funds(R) ................................................ 28
Trustees and Officers ..................................................... 29
HIGHLIGHTS
o FOR THE 12 MONTHS ENDED AUGUST 31, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 59.54%, CLASS B SHARES
59.16%, CLASS C SHARES 59.35%, AND CLASS I SHARES 59.73%. (SEE
PERFORMANCE SUMMARY FOR MORE INFORMATION.)
o THE FUND HAS BEEN WELL POSITIONED IN THREE MAJOR SECTORS THAT HAVE DRIVEN
ITS PERFORMANCE: TECHNOLOGY, FINANCIAL SERVICES, AND MEDIA.
o TECHNOLOGY HAS BENEFITED FROM A SWEEPING MOVEMENT BY AMERICAN
CORPORATIONS TO INCREASE PRODUCTIVITY, WHILE FINANCIAL SERVICES AND MEDIA
COMPANIES HAVE BEEN GOING THROUGH A RAPID AND MUCH-NEEDED CONSOLIDATION
PROCESS.
o THE FUND HAS A SMALL ALLOCATION IN STOCKS OF JAPANESE TECHNOLOGY
COMPANIES THAT FEATURE DIGITAL (AS OPPOSED TO ANALOG) TECHNOLOGY IN
PRODUCTS SUCH AS CAMCORDERS AND TELEVISIONS.
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of 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. While some lenders are beginning to tighten standards to address this
problem, consumer debt and personal bankruptcies continue to rise. The rapid
pace of growth seen in the first quarter slowed slightly in the second quarter,
to an annual rate of 3.3%. While real (inflation-adjusted) growth could moderate
further in the third quarter, we believe economic momentum will carry well into
the first quarter of 1998. The money supply is increasing at a rapid rate, the
housing and automobile markets are strengthening, and it now appears that
Christmas sales could be quite good. Because economic growth continues to be
impressive, markets are likely to begin focusing on the Federal Reserve Board's
willingness to raise interest rates.
Although the U.S. equity market has seen increased price volatility of late,
we have been surprised by its overall strength thus far in 1997. Much of this
is the result of continuing gains in corporate earnings. Even as the current
recovery enters its seventh year, more and more U.S. companies have been
exceeding analysts' earnings estimates. In the first quarter of 1997, for
example, two-thirds of all companies met or exceeded analysts' expectations, a
trend that could be an important indicator of the U.S. equity market's future
direction. However, 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.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
September 15, 1997
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of Christian Felipe]
Christian Felipe
For the 12 months ended August 31, 1997, Class A shares of the Fund provided a
total return of 59.54%, Class B shares 59.16%, Class C shares 59.35%, and
Class I shares 59.73%. These returns, which include the reinvestment of
distributions but exclude the effects of any sales charges, compare to a
40.78% return for the Standard & Poor's 500 Composite Index, a popular,
unmanaged index of common stock total return performance.
Q. WHY DO YOU THINK THE FUND HAS PERFORMED SO WELL OVER THE PAST 12 MONTHS?
A. The Fund has been well positioned in three major sectors that have driven
its performance: technology, financial services, and media. Technology has
benefited from a sweeping movement by American corporations to increase
productivity, while financial services and media companies have been going
through a rapid and much-needed consolidation process.
Q. LET'S LOOK AT EACH OF THESE SECTORS, STARTING WITH TECHNOLOGY.
WHAT'S GOING ON THERE?
A. Besides helping companies' productivity, the technology sector has
benefited from the rapid proliferation of personal computers and the
dramatic growth of the Internet. This has led to fast top-line growth for
many of the companies that are well positioned in these markets, such as
Microsoft, Intel, Sun Microsystems, and Oracle Systems. This, in turn, has
led to rapid earnings growth, which the market has begun to recognize. We
put a small part of the Fund, about 4%, in stocks of Japanese technology
companies that now feature digital (as opposed to analog) technology in
products like camcorders, televisions, and cameras. For example, a consumer
can take a camcorder, record with it, download the information onto a PC,
edit it onto a video, and send it over the Internet so the grandparents can
see their grandchildren taking their first steps. Companies like Sony and
Canon have been at the leading edge of this area, and those stocks have
done great. Looking ahead, I think the overall prospects for technology
companies are still very strong and that valuations are reasonable, and we
are continuing to search for the best names.
Q. NOW, WHAT ABOUT FINANCIAL SERVICES?
A. These companies have benefited from stable interest rates and the low
inflation rate, which have led to a boom in companies that cater to the
retirement, investment, and savings communities. Companies like Franklin
Resources and Morgan Stanley, Dean Witter, Discover have been great stocks
for the portfolio. We were also fortunate that one of our stocks in this
area, Equitable of Iowa, was bought out by ING Barings, a foreign bank and
investment firm. We've seen a lot of consolidation in this area, too, as
banks and other financial services companies have merged, creating greater
efficiencies of scale and improved valuations.
Q. AND MEDIA?
A. There's been consolidation here, too, thanks to the Telecommunications Act
of 1996, as many television and radio companies, such as LIN Television,
American Radio, and SFX Broadcasting, have merged or been bought out.
Consolidation has also helped strengthen some of the other companies in the
portfolio.
Q. GETTING BACK TO TECHNOLOGY, WHEN YOU USE THIS TERM, WHAT KINDS OF COMPANIES
ARE YOU REFERRING TO, AT LEAST AS THEY RELATE TO THE FUND?
A. Our definition of a technology company excludes what we call "commodity
plays." On the surface, they look like technology companies; they make
personal computers or disk drives, or they are distributors, or re-sellers.
We see them as commodity companies, as opposed to companies like Microsoft
and Intel, which we view as the guts and brains of the industry. We're not
suggesting that the commodity companies, the ones that make and sell PCs in
stores or sell them over the phone or the Internet, can't be good
investments. But we don't believe they control their own destinies, and
they're subject to major competitive inroads, from foreign manufacturers,
for example. There is no microprocessor company that can compete with
Intel, nor is there an operating system of any significance that can
compete with Microsoft Windows. Anyone can make a PC. What matters is the
sustainability of the business franchise.
Q. IN YOUR LAST REPORT, YOU SAID STOCKS OF HEALTH MAINTENANCE ORGANIZATIONS
(HMOS) HAD UNDERPERFORMED DUE TO POOR PRICING BY THE INDUSTRY. HOW DOES
THAT SITUATION STAND NOW?
A. HMOs continue to be a very difficult area. We've refocused the health care
part of the portfolio away from the service companies toward the products
and pharmaceutical companies like Bristol-Myers Squibb and Schering Plough.
Q. HAVE THERE BEEN ANY SIGNIFICANT CHANGES IN OTHER FUND HOLDINGS?
A. Not really, except that we've had three or four major stocks get bought
out, in sectors like financial services and media, which I mentioned. Other
than that, there haven't been any major changes to the portfolio. Microsoft
and Franklin Resources are still the two largest positions.
Q. COULD YOU TALK ABOUT ANY SPECIFIC STOCKS THAT PERFORMED MUCH BETTER THAN
YOU EXPECTED, AND WHY YOU THINK THEY DID WELL?
A. Tyco International was one stock that really surprised us. It made some
acquisitions, of ADT, for example, that turned out to add a lot more to
earnings than we had anticipated.
Q. IN GENERAL, HOW WOULD YOU CHARACTERIZE THE BUSINESS AND ECONOMIC
ENVIRONMENT OF THE PAST YEAR, PARTICULARLY AS IT RELATES TO THE FUND?
A. Nearly perfect - steady growth, nominal inflation, stable interest rates.
We think that will continue. However, there is some cause for concern in
the international markets, like Asia's, where the currency crisis has put
pressure on companies that do business there. Europe continues to be
lackluster in its economic performance. However, while this might cause
some minor changes in the Fund, our emphasis has been on U.S. companies, so
we do not believe it's going to make a major difference. At the same time,
the yen has continued to depreciate dramatically; that has favored the
Japanese multinationals, and we've continued to put our money in those
companies.
/s/ Christian Felipe
Christian Felipe
Portfolio Manager
PORTFOLIO MANAGER'S PROFILE
CHRISTIAN FELIPE JOINED MFS IN 1986. A GRADUATE OF THE UNIVERSITY OF
CALIFORNIA, LOS ANGELES, AND THE UNIVERSITY OF PENNSYLVANIA WHARTON
SCHOOL OF FINANCE AND COMMERCE, HE WAS NAMED INVESTMENT OFFICER IN 1987,
ASSISTANT VICE PRESIDENT - INVESTMENTS IN 1988, VICE PRESIDENT -
INVESTMENTS IN 1989, AND SENIOR VICE PRESIDENT IN 1996. MR. FELIPE HAS
MANAGED MFS(R) STRATEGIC GROWTH FUND SINCE ITS INCEPTION IN 1996.
FUND FACTS
OBJECTIVE: THE OBJECTIVE OF THE FUND IS CAPITAL APPRECIATION.
UNDER NORMAL MARKET CONDITIONS, THE FUND INVESTS
SUBSTANTIALLY ALL OF ITS ASSETS IN EQUITY SECURITIES OF
COMPANIES THAT HAVE ABOVE-AVERAGE GROWTH POTENTIAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: CLASS A SHARES: JANUARY 2, 1996
CLASS B SHARES: APRIL 11, 1997
CLASS C SHARES: APRIL 11, 1997
CLASS I SHARES: JANUARY 2, 1997
SIZE: $56.9 MILLION NET ASSETS AS OF AUGUST 31, 1997
PERFORMANCE SUMMARY
The information below and on the following pages illustrates the historical
performance of MFS Strategic Growth Fund - Class A shares in comparison to
various market indicators. Class A share performance results reflect the
deduction of the 5.75% maximum sales charge; 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 the
differences in charges and fees paid by shareholders investing in different
classes. It is not possible to invest directly in an index.
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from January 2, 1996, through August 31, 1997)
MFS Strategic Growth S&P 500 Composite Consumer Price
Fund -- Class A Index Index -- U.S.
January 1996 $10,000 $10,000 $10,000
April 1996 $12,600 $10,700 $10,200
September 1996 $13,700 $11,300 $10,300
December 1996 $14,200 $12,200 $10,300
April 1997 $15,900 $13,400 $10,400
August 1997 $19,559 $15,112 $10,476
AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 31, 1997
<TABLE>
<CAPTION>
1 Year Life of Fund*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Strategic Growth Fund (Class A) including 5.75% sales charge (SEC
results) +51.98% +45.37%
- -----------------------------------------------------------------------------------------------------------------------------
MFS Strategic Growth Fund (Class A) at net asset value +59.54% +49.69%
- -----------------------------------------------------------------------------------------------------------------------------
MFS Strategic Growth Fund (Class B) with CDSC (SEC results) +55.16% +47.63%
- -----------------------------------------------------------------------------------------------------------------------------
MFS Strategic Growth Fund (Class B) at net asset value +59.16% +49.48%
- -----------------------------------------------------------------------------------------------------------------------------
MFS Strategic Growth Fund (Class C) with CDSC (SEC results) +58.35% +49.59%
- -----------------------------------------------------------------------------------------------------------------------------
MFS Strategic Growth Fund (Class C) at net asset value +59.35% +49.59%
- -----------------------------------------------------------------------------------------------------------------------------
MFS Strategic Growth Fund (Class I) at net asset value +59.73% +49.80%
- -----------------------------------------------------------------------------------------------------------------------------
Average growth fund+ +33.52% +26.77%
- -----------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index++ +40.78% +28.29%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Price Index**++ + 2.19% + 2.85%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*For the period from the commencement of the Fund's investment operations,
January 2, 1996, through August 31, 1997.
+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).
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, which became available on January 2, 1997, have no initial
sales charge or Rule 12b-1 fees and are only available to certain
institutional investors.
Class B and Class C share results include the performance and the operating
expenses (e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods
prior to the commencement of offering of Class B and Class C shares. Because
operating expenses attributable to Class B and Class C shares are higher than
those of Class A shares, Class B and Class C share performance generally would
have been lower than Class A share performance. The Class A share performance
included within the Class B and Class C share SEC performance has been
adjusted to reflect the CDSC generally applicable to Class B and Class C
shares rather than the initial sales charge generally applicable to Class A
shares.
Class I share results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods prior to the
commencement of offering of Class I shares. Because operating expenses
attributable to Class A shares are greater than those of Class I shares, Class
I share performance generally would have been higher than Class A share
performance. The Class A share performance included within the Class I share
performance has been adjusted to reflect the fact that Class I shares 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.
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 MFS STRATEGIC GROWTH FUND HAS DESIGNATED $128 AS A LONG-TERM CAPITAL
GAIN.
DIVIDENDS RECEIVED DEDUCTION
FOR THE YEAR ENDED AUGUST 31, 1997, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR
CORPORATIONS, CAME TO 4.4%.
<PAGE>
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1997
TOP 10 EQUITY HOLDINGS
FRANKLIN RESOURCES, INC. CVS CORP.
Mutual fund and financial services U.S. drugstore chain
company
CLEAR CHANNEL COMMUNICATIONS, INC.
MICROSOFT CORP. Radio and television company
Computer software and systems
company MCI COMMUNICATIONS CORP.
Telecommunications company
COMPUTER ASSOCIATES INTERNATIONAL,
INC. RITE AID CORP.
Computer software company U.S. drugstore chain
ORACLE SYSTEMS CORP. LIN TELEVISION CORP.
Developer and manufacturer of Broadcasting and cellular
database software communications company
TYCO INTERNATIONAL LTD.
Manufacturer of fire protection,
packaging, and electronic equipment
LARGEST SECTORS
[GRAPHIC OMITTED]
Leisure 18.5%
Technology 34.5%
Financial Services 14.3%
Miscellaneous
(conglomerates, special
products/services) 13.2%
Retailing 12.8%
Health Care 6.7%
For a more complete breakdown, refer to the Portfolio of Investments.
<PAGE>
PORTFOLIO OF INVESTMENTS - August 31, 1997
<TABLE>
<CAPTION>
Stocks - 89.9%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------------------------
U.S. Stocks - 84.7%
Aerospace - 0.3%
<S> <C> <C>
Gulfstream Aerospace Corp.* 6,500 $ 192,562
- -------------------------------------------------------------------------------------------------
Banks and Credit Companies - 2.0%
Citicorp 2,377 $ 303,365
Norwest Corp. 9,449 542,727
State Street Corp. 1,000 49,875
Wells Fargo & Co. 989 251,453
-----------
$ 1,147,420
- -------------------------------------------------------------------------------------------------
Broadcasting - 1.0%
Argyle Television, Inc.* 5,000 $ 140,000
SFX Broadcasting, Inc.* 1,345 98,689
Young Broadcasting, Inc., "A"* 8,899 321,477
-----------
$ 560,166
- -------------------------------------------------------------------------------------------------
Building - 0.1%
Newport News Shipbuilding, Inc. 2,000 $ 38,750
- -------------------------------------------------------------------------------------------------
Business Machines - 2.4%
Affiliated Computer Services, Inc., "A"* 11,124 $ 292,005
Sun Microsystems, Inc.* 22,000 1,056,000
-----------
$ 1,348,005
- -------------------------------------------------------------------------------------------------
Business Services - 1.9%
AccuStaff, Inc.* 4,600 $ 122,188
At Home Corp.* 100 1,913
Computer Sciences Corp.* 3,540 263,287
CUC International, Inc.* 11,905 279,767
DST Systems, Inc.* 2,800 101,325
First Data Corp. 6,432 264,114
Galileo International, Inc.* 500 13,219
Sabre Group Holding, Inc., "A"* 1,500 46,125
-----------
$ 1,091,938
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Cellular Telephones - 0.7%
AirTouch Communications, Inc.* 6,719 $ 227,186
Telephone & Data Systems, Inc. 4,380 173,010
-----------
$ 400,196
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Computer Software - Personal Computers - 4.3%
Microsoft Corp.* 18,409 $ 2,433,440
- -------------------------------------------------------------------------------------------------
Computer Software - Systems - 13.3%
BMC Software, Inc.* 14,644 $ 917,080
Cadence Design Systems, Inc.* 23,965 1,139,835
Computer Associates International, Inc. 35,888 2,400,010
Compuware Corp.* 10,430 644,053
Oracle Systems Corp.* 61,050 2,327,531
Synopsys, Inc.* 3,500 121,188
USCS International, Inc.* 3,000 53,625
-----------
$ 7,603,322
- -------------------------------------------------------------------------------------------------
Consumer Goods and Services - 3.4%
Meyer Fred, Inc.* 2,500 $ 130,000
Service Corp. International 1,000 32,000
Tyco International Ltd.* 22,623 1,774,492
-----------
$ 1,936,492
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Containers - 0.3%
Corning, Inc. 3,110 $ 164,441
- -------------------------------------------------------------------------------------------------
Electrical Equipment - 0.3%
Westinghouse Electric Corp. 6,190 $ 159,392
- -------------------------------------------------------------------------------------------------
Electronics - 1.8%
Sony Corp. 11,643 $ 1,026,039
- -------------------------------------------------------------------------------------------------
Entertainment - 10.3%
American Radio Systems Corp., "A" * 4,284 $ 210,987
Clear Channel Communications, Inc.* 24,100 1,637,294
Cox Radio, Inc.* 6,100 163,175
Disney (Walt) Co. 1,500 115,219
Harrah's Entertainment, Inc.* 40,796 915,360
Jacor Communications, Inc., "A"* 8,210 361,240
LIN Television Corp.* 24,414 1,158,139
Mirage Resorts, Inc.* 6,590 176,694
Time Warner, Inc. 7,798 401,597
Univision Communications, Inc., "A"* 14,554 745,893
-----------
$ 5,885,598
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Financial Institutions - 9.4%
American Express Co. 12,838 $ 998,154
Associates First Capital Corp., "A" 13,704 795,689
Federal National Mortgage Assn. 14,738 648,472
Franklin Resources, Inc. 32,286 2,498,129
Merrill Lynch & Co., Inc. 3,894 239,481
Morgan Stanley, Dean Witter, Discover and Co. 4,114 197,986
-----------
$ 5,377,911
- -------------------------------------------------------------------------------------------------
Financial Services - 0.1%
Liberty Financial Cos., Inc. 1,000 $ 49,563
- -------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.4%
PepsiCo, Inc. 5,929 $ 213,444
- -------------------------------------------------------------------------------------------------
Insurance - 1.5%
Equitable of Iowa Cos. 10,199 $ 664,210
Lincoln National Corp. 2,800 187,425
-----------
$ 851,635
- -------------------------------------------------------------------------------------------------
Medical and Health Products - 2.9%
Bristol-Myers Squibb Co. 11,327 $ 860,852
Johnson & Johnson 3,000 170,062
Mckesson Corp.## 1,100 103,056
Pfizer, Inc. 1,500 83,063
Schering Plough Corp. 9,317 447,216
-----------
$ 1,664,249
- -------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 3.0%
Cardinal Health, Inc. 1,000 $ 66,250
Columbia/HCA Healthcare Corp. 9,179 289,712
Genesis Health Ventures, Inc.* 3,500 122,062
Health Management Associates, Inc., "A"* 700 20,694
HEALTHSOUTH Corp.* 10,657 265,759
Medtronic, Inc. 600 54,225
Pacificare Health Systems, Inc., "B"* 1,000 68,375
St. Jude Medical, Inc.* 6,256 238,119
United Healthcare Corp. 11,481 558,264
-----------
$ 1,683,460
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Office Equipment - 1.5%
Office Depot, Inc.* 46,109 $ 850,135
- -------------------------------------------------------------------------------------------------
Pollution Control - 0.7%
USA Waste Services, Inc.* 2,300 $ 96,600
Waste Management, Inc. 9,391 300,512
-----------
$ 397,112
- -------------------------------------------------------------------------------------------------
Printing and Publishing - 1.2%
Gannett Co., Inc. 4,790 $ 466,726
Tribune Co. 4,611 227,956
-----------
$ 694,682
- -------------------------------------------------------------------------------------------------
Restaurants and Lodging - 4.1%
HFS, Inc.* 14,577 $ 811,756
Hilton Hotels Corp. 29,018 890,490
Marriot International, Inc. 3,923 261,125
Promus Hotel Corp.* 9,860 382,691
-----------
$ 2,346,062
- -------------------------------------------------------------------------------------------------
Stores - 9.2%
AutoZone, Inc.,* 6,120 $ 172,890
CVS Corp. 31,372 1,768,597
General Nutrition Cos., Inc.* 7,040 195,360
Gymboree Corp.* 3,200 78,400
Home Depot, Inc. 14,225 671,242
Liz Claiborne, Inc. 3,250 144,828
Micro Warehouse, Inc.* 5,100 133,238
Penney (J.C.), Inc. 2,690 161,400
PETsMART, Inc.* 2,000 17,125
Rite Aid Corp. 29,223 1,462,976
Wal-Mart Stores, Inc. 12,406 440,413
-----------
$ 5,246,469
- -------------------------------------------------------------------------------------------------
Supermarkets - 0.7%
Safeway, Inc.* 7,420 $ 377,956
- -------------------------------------------------------------------------------------------------
Telecommunications - 4.6%
Aspect Telecommunications Corp.* 17,938 $ 394,636
Cabletron Systems, Inc.* 5,130 155,182
Cellular Communications International* 3,800 136,800
Cisco Systems, Inc.* 11,962 901,636
Lucent Technologies, Inc. 13,082 1,018,761
-----------
$ 2,607,015
- -------------------------------------------------------------------------------------------------
Utilities - Telephone - 3.3%
MCI Communications Corp. 54,440 $ 1,551,540
Sprint Corp. 7,513 353,111
-----------
$ 1,904,651
- -------------------------------------------------------------------------------------------------
Total U.S. Stocks $48,252,105
- -------------------------------------------------------------------------------------------------
Foreign Stocks - 5.2%
Germany - 0.6%
SAP AG, ADR (Computer Software - Systems) 200 $ 43,983
SAP AG, Preferred (Computer Software - Systems) 1,017 232,081
SAP Aktiengesellschaft, ADR (Computer Software - Systems)## 600 45,300
-----------
$ 321,364
- -------------------------------------------------------------------------------------------------
Japan - 4.1%
Canon, Inc. (Special Products and Services) 22,000 $ 607,463
Canon, Inc., ADR (Special Products and Services) 7,510 1,044,829
Sony Corp. (Electronics) 7,600 661,691
-----------
$ 2,313,983
- -------------------------------------------------------------------------------------------------
Switzerland - 0.2%
Novartis AG (Pharmaceuticals) 100 $ 141,221
- -------------------------------------------------------------------------------------------------
United Kingdom - 0.3%
Danka Business Systems, ADR (Business Services) 3,240 $ 151,470
- -------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 2,928,038
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $44,792,121) $51,180,143
- -------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.1%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------------------------
Entertainment - 0.1%
American Radio Systems Corp., 7s ##*
(Identified Cost, $48,600) 1,000 $ 65,250
- -------------------------------------------------------------------------------------------------
Warrants - 0.9%
- -------------------------------------------------------------------------------------------------
Intel Corp.* (Identified Cost, $217,698) 7,243 $ 518,780
- -------------------------------------------------------------------------------------------------
Short-Term Obligations - 4.9%
- -------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 9/02/97 $1,100 $ 1,099,839
Federal National Mortgage Assn., due 10/03/97 - 10/23/97 1,710 1,699,144
- -------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 2,798,983
- -------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $47,857,402) $54,563,156
Other Assets, Less Liabilities - 4.2% 2,380,418
- -------------------------------------------------------------------------------------------------
Net Assets - 100.0% $56,943,574
- -------------------------------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
AUGUST 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $47,857,402) $54,563,156
Cash 72,569
Receivable for Fund shares sold 1,906,665
Receivable for investments sold 459,831
Dividends and interest receivable 11,193
Deferred organization expenses 2,277
Other assets 734
-----------
Total assets $57,016,425
-----------
Liabilities:
Payable for investments purchased $ 46,976
Payable for Fund shares reacquired 562
Payable to affiliates -
Management fee 3,438
Distribution and service fee 19,585
Accrued expenses and other liabilities 2,290
-----------
Total liabilities $ 72,851
-----------
Net assets $56,943,574
===========
Net assets consist of:
Paid-in capital $49,029,398
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 6,705,524
Accumulated undistributed net realized gain on investments
and foreign currency transactions 1,208,652
-----------
Total $56,943,574
===========
Shares of beneficial interest outstanding: 3,393,373
=========
Class A shares:
Net asset value per share
(net assets of $21,698,530 / 1,292,286 shares of
beneficial interest outstanding) $16.79
======
Offering price per share (100 / 94.25) $17.81
======
Class B shares:
Net asset value and offering price per share
(net assets of $15,734,762 / 939,339 shares of
beneficial interest outstanding) $16.75
======
Class C shares:
Net asset value and offering price per share
(net assets of $6,047,843 / 360,580 shares of beneficial
interest outstanding) $16.77
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $13,462,439 / 801,168 shares of
beneficial interest outstanding) $16.80
======
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>
Statement of Operations
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1997
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 71,128
Interest 27,789
----------
Total investment income $ 98,917
----------
Expenses -
Management fee $ 146,570
Shareholder servicing agent fee 19,628
Shareholder servicing agent fee (Class A) 4,700
Distribution and service fee (Class A) 11,200
Distribution and service fee (Class B) 20,634
Distribution and service fee (Class C) 8,868
Administrative fee 1,974
Registration fee 51,496
Custodian fee 10,671
Printing 10,406
Auditing fee 8,515
Postage 2,762
Legal fee 2,087
Amortization of organization expenses 434
Miscellaneous 4,711
----------
Total expenses $ 304,656
Fees paid indirectly (143)
Reduction of expenses by investment adviser (56,663)
----------
Net expenses $ 247,850
----------
Net investment loss $ (148,933)
----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $1,913,771
Foreign currency transactions 776
----------
Net realized gain on investments and foreign currency $1,914,547
----------
Change in unrealized appreciation (depreciation) -
Investments $6,419,234
Translation of assets and liabilities in
foreign currencies (230)
----------
Net unrealized gain on investments and foreign
currency translations $6,419,004
----------
Net realized and unrealized gain on investments
and foreign currency $8,333,551
----------
Increase in net assets from operations $8,184,618
==========
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 1997 AUGUST 31, 1996*
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income (loss) $ (148,933) $ 13,249
Net realized gain on investments and foreign currency
transactions 1,914,547 1,148,632
Net unrealized gain on investments and foreign currency
translation 6,419,004 286,520
------------ ------------
Increase in net assets from operations $ 8,184,618 $ 1,448,401
------------ ------------
Distributions declared to shareholders -
From net realized gain on investments (Class A) (1,718,843) --
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 42,785,722 $ 9,192,182
Net asset value of shares issued to shareholders in
reinvestment of distributions 1,718,872 --
Cost of shares reacquired (4,171,478) (495,900)
------------ ------------
Increase in net assets from Fund share transactions $ 40,333,116 $ 8,696,282
------------ ------------
Total increase in net assets $ 46,798,891 $ 10,144,683
Net assets:
At beginning of period 10,144,683 --
------------ ------------
At end of period (including accumulated undistributed net
investment income of $0 and $13,184, respectively) $ 56,943,574 $ 10,144,683
============ ============
</TABLE>
*For the period from the commencement of the Fund's investment operations,
January 2, 1996, through August 31, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 1997 AUGUST 31, 1996*
- --------------------------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
<S> <C> <C>
Net asset value - beginning of period $ 12.26 $ 10.00
------------ ------------
Income from investment operations# -
Net investment income (loss)(S) $ (0.11) $ 0.02
Net realized and unrealized gain on investments and foreign
currency transactions 6.67 2.24
------------ ------------
Total from investment operations $ 6.56 $ 2.26
------------ ------------
Less distributions declared to shareholders -
From net realized gain on investments and foreign currency
transactions (2.03) --
------------ ------------
Net asset value - end of period $ 16.79 $ 12.26
============ ============
Total return(+) 59.54% 22.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.29% 0.44%+
Net investment income (loss) (0.82)% 0.23%+
Portfolio turnover 82% 104%
Average commission rate $ 0.0527 $ 0.0555
Net assets at end of period (000 omitted) $ 21,699 $ 10,145
*For the period from the commencement of the Fund's investment operations, January 2, 1996, through
August 31, 1996.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##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)Subject to reimbursement by the Fund, the Adviser voluntarily agreed to maintain expenses of the Fund,
exclusive of management, distribution, and service fees, at not more than 0.50% of average daily net
assets reduced from 1.50%, (based on operating expenses) effective April 14, 1997. To the extent
actual expenses were over/under this limitation, the net investment income per share and the ratios
would have been:
Net investment loss $ (0.15) $ (0.05)
Ratios (to average net assets):
Expenses## 1.59% 1.84%+
Net investment loss (1.12)% (0.66)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PERIOD ENDED
AUGUST 31, 1997**
- --------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
<S> <C>
Net asset value - beginning of period $12.53
------
Income from investment operations# -
Net investment loss(S) $(0.09)
Net realized and unrealized gain on investments and foreign currency
transactions 4.31
-----
Total from investment operations $ 4.22
------
Net asset value - end of period $16.75
======
Total return 33.76%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.02%+
Net investment loss (1.46)%+
Portfolio turnover 82%
Average commission rate $0.0527
Net assets at end of period (000 omitted) $15,735
**For the period from the commencement of offering of the Fund's Class B shares April 11,
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.
(S)Subject to reimbursement by the Fund, the Adviser voluntarily agreed to maintain expenses
of the Fund, exclusive of management, distribution, and service fees, at not more than
0.50% of average daily net assets reduced from 1.50%, (based on operating expenses)
effective April 14, 1997. To the extent actual expenses were over/under this limitation,
the net investment income per share and the ratios would have been:
Net investment loss $ (0.12)
Ratios (to average net assets):
Expenses## 2.51%+
Net investment loss (1.95)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,1997***
- --------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
<S> <C>
Net asset value - beginning of period $12.53
------
Income from investment operations# -
Net investment loss(S) $(0.09)
Net realized and unrealized gain on investments and foreign currency
transactions 4.33
------
Total from investment operations $ 4.24
------
Net asset value - end of period $16.77
======
Total return 33.92%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.04%+
Net investment loss (1.48)%+
Portfolio turnover 82%
Average commission rate $0.0527
Net assets at end of period (000 omitted) $ 6,048
***For the period from the commencement of the Fund's offering of Class C shares, April 11,
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.
(S)Subject to reimbursement by the Fund, the Adviser voluntarily agreed to maintain expenses
of the Fund, exclusive of management, distribution, and service fees, at not more than
0.50% of average daily net assets reduced from 1.50%, (based on operating expenses)
effective April 14, 1997. To the extent actual expenses were over/under this limitation,
the net investment income per share and the ratios would have been:
Net investment loss $(0.13)
Ratios (to average net assets):
Expenses## 2.56%+
Net investment loss (1.99)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1997****
- --------------------------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
<S> <C>
Net asset value - beginning of period $ 12.08
-------
Income from investment operations# -
Net investment (loss)(S) $ (0.04)
Net realized and unrealized gain on investments and foreign currency
transactions 4.76
-------
Total from investment operations $ 4.72
-------
Net asset value - end of period $ 16.80
=======
Total return 39.24%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.94%+
Net investment loss (0.40)%+
Portfolio turnover 82%
Average commission rate $0.0527
Net assets at end of period (000 omitted) $13,462
****For the period from the commencement of the Fund's offering of Class I shares, January
2, 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.
(S)Subject to reimbursement by the Fund, the Adviser voluntarily agreed to maintain
expenses of the Fund, exclusive of management, distribution, and service fees, at not
more than 0.50% of average daily net assets reduced from 1.50%, (based on operating
expenses) effective April 14, 1997. To the extent actual expenses were over/under this
limitation, the net investment income per share and the ratios would have been:
Net investment income (loss) $ (0.06)
Ratios (to average net assets):
Expenses 1.14%+
Net investment loss (0.60)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Strategic Growth Fund (the Fund) is a 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.
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 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. 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 gains and
losses on investments that result from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of Fund
operations.
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 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. 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.
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.
Dividends received in cash are recorded on the ex-dividend date. 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 custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to an
arrangement which 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. 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 1997, $135,749 was reclassified from
accumulated undistributed net investment income to accumulated net realized
gain on investments 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 0.75%
of average daily net assets.
The Fund has a temporary expense reimbursement agreement whereby MFS has
voluntarily agreed to pay all of the Fund's operating expenses, exclusive of
management, distribution, and service fees. The Fund in turn will pay MFS an
expense reimbursement fee not greater than 0.50% of average daily net assets
reduced from 1.50%, (based on total operating expenses) effective April 14,
1997. To the extent that the expense reimbursement fee exceeds the Fund's
actual expenses, the excess will be applied to amounts paid by MFS in prior
years. At August 31, 1997, the aggregate unreimbursed expenses owed to MFS by
the Fund amounted to $50,270.
Administrator - Effective March 1, 1997, the Fund has an administrative
services agreement with MFS to provide the Fund with certain financial, legal,
and other administrative services. As a partial reimbursement for the cost of
providing these services, the Fund pays MFS an administrative fee up to 0.015%
per annum of the Fund's average daily net assets, provided that the
administrative fee is not assessed on Fund assets that exceed $3 billion.
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 Trustees did not receive
any payments for their services to the Fund.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$46,851 for the year ended August 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, 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 0.35%
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 $2,320 for the year ended August 31, 1997. Fees incurred under the
distribution plan during the year ended August 31, 1997, were 0.12% of average
daily net assets attributable to Class A shares on an annualized basis. The
distribution fee under the Class A distribution plan is currently being
waived.
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 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 $132 and $0 for Class B and Class C
shares, respectively, for the year ended August 31, 1997. Fees incurred under
the distribution plan during the year ended August 31, 1997, were 1.00% and
1.00% of average net assets attributable to Class B and Class C shares on an
annualized basis respectively.
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
twelve months of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended August 31,
1997, were $12, $403, and $437 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 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. MFSC did not impose a portion of
its fee, which is reflected as a reduction of expenses in the Statement of
Operations.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, aggregated $49,575,360 and $16,236,891,
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 $47,872,576
===========
Gross unrealized appreciation $ 7,225,010
Gross unrealized depreciation (534,430)
-----------
Net unrealized appreciation $ 6,690,580
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Class A Shares
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
AUGUST 31, 1997 AUGUST 31, 1996*
------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,208,172 $18,761,089 868,195 $9,192,182
Shares issued to
shareholders in
reinvestment of
distributions 139,292 1,718,872 -- --
Shares transferred to Class I (706,677) (8,960,664) -- --
Shares reacquired (176,243) (2,019,399) (40,453) (495,900)
-------- ------------ ------- ----------
Net increase 464,544 $ 9,499,898 827,742 $8,696,282
======== ============ ======= ==========
</TABLE>
* For the period from the commencement of the Fund's investment operations,
January 2, 1996, through August 31, 1997.
Class B Shares
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1997**
-------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 962,839 $15,559,691
Shares reacquired (23,500) (387,233)
------- -----------
Net increase 939,339 $15,172,458
======= ===========
Class C Shares
PERIOD ENDED
AUGUST 31, 1997***
-------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
Shares sold 375,407 $6,018,343
Shares reacquired (14,827) (249,686)
-------- ----------
Net increase 360,580 $5,768,657
======== ==========
Class I Shares
PERIOD ENDED
AUGUST 31, 1997****
-------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
Shares sold 216,474 $2,446,599
Shares transferred from Class A 706,677 8,960,664
Shares reacquired (121,983) (1,515,160)
-------- ----------
Net increase 801,168 $9,892,103
======== ==========
</TABLE>
** For the period from the commencement of the Fund's offering of Class B
shares, April 11, 1997, through August 31, 1997.
*** For the peirod from the commencement of the Fund's offering of Class C
shares, April 11, 1997, through August 31, 1997.
**** For the period from the commencement of the Fund's offering of Class I
shares, January 2, 1997, through August 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 August 31, 1997, was $11.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust I and Shareholders of MFS Strategic Growth
Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Strategic Growth Fund, including the schedule of portfolio investments as of
August 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets and the financial highlights for
the year then ended and for the period from January 2, 1996 (commencement of
operations) to August 31, 1996. 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 as of August 31, 1997, 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
Strategic Growth Fund at August 31, 1997, the results its operations for the
year then ended, the changes in its net assets and the financial highlights
for the year then ended and for the period from January 2, 1996 (commencement
of operations) to August 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
October 9, 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) STRATEGIC GROWTH FUND
<S> <C>
TRUSTEES SECRETARY
A. Keith Brodkin* - Chairman and President Stephen E. Cavan*
Richard B. Bailey* - Private Investor; ASSISTANT SECRETARY
Former Chairman and Director (until 1991), James R. Bordewick, Jr.*
Massachusetts Financial Services Company;
Director, Cambridge Bancorp; Director, CUSTODIAN
Cambridge Trust Company State Street Bank and Trust Company
Marshall N. Cohan - Private Investor AUDITORS
Ernst & Young LLP
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital; INVESTOR INFORMATION
Professor of Surgery, Harvard Medical School For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime
The Hon. Sir J. David Gibbons, KBE - Chief from a touch-tone telephone.
Executive 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
Abby M. O'Neill - Private Investor; information kit, call toll free:
Director, Rockefeller Financial Services, 1-800-637-2929 any business day from 9
Inc. (investment advisers) a.m. to 5 p.m. Eastern time (or leave a
message anytime).
Walter E. Robb, III - President and
Treasurer, Benchmark Advisors, Inc. INVESTOR SERVICE
(corporate financial consultants); MFS Service Center, Inc.
President, Benchmark Consulting Group, P.O. Box 2281
Inc. (office services); Trustee, Landmark Boston, MA 02107-9906
Funds (mutual funds)
For general information, call toll free:
Arnold D. Scott* - Senior Executive Vice 1-800-225-2606 any business day from 8
President, Director and Secretary, a.m. to 8 p.m. Eastern time.
Massachusetts Financial Services Company
For service to speech- or
Jeffrey L. Shames* - President and hearing-impaired, call toll free:
Director, Massachusetts Financial Services Company 1-800-637-6576 any business day from 9
a.m. to 5 p.m. Eastern time. (To use this
J. Dale Sherratt - President, Insight service, your phone must be equipped with
Resources, Inc. (acquisition planning specialists) a Telecommunications Device for the Deaf.)
Ward Smith - Former Chairman (until 1994), For share prices, account balances, and
NACCO Industries; Director, Sundstrand exchanges, call toll free: 1-800-MFS-TALK
Corporation (1-800-637-8255) anytime from a touch-tone
telephone.
INVESTMENT ADVISER
Massachusetts Financial Services Company WORLD WIDE WEB
500 Boylston Street www.mfs.com
Boston, MA 02116-3741
DISTRIBUTOR [DALBAR For the fourth year in a row,
MFS Fund Distributors, Inc. LOGO] MFS earned a #1 ranking in the
500 Boylston Street DALBAR, Inc. Broker/Dealer Survey,
Boston, MA 02116-3741 Main Office Operations Service Quality
Category. The firm achieved a 3.42
PORTFOLIO MANAGER overall score on a scale of 1 to 4 in
Christian Felipe* the 1997 survey. A total of 111 firms
responded, offering input on the
TREASURER quality of service they received from
W. Thomas London* 29 mutual fund companies nationwide.
The survey contained questions about
ASSISTANT TREASURERS service quality in 11 categories,
Mark E. Bradley* including "knowledge of operations
Ellen Moynihan* contact," "keeping you informed,"
James O. Yost* "ease of doing business" with the firm.
*Affiliated with the Investment Adviser
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MFS(R) STRATEGIC BULK RATE
GROWTH FUND U.S. POSTAGE
PAID
MFS
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500 Boylston Street
Boston, MA 02116-3741
[LOGO] M F S(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
[DALBAR
LOGO]
TOP-RATED SERVICE
(c)1997 MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116-3741
MSG-2 10/97 12M 090/290/390/890
