<PAGE>
[Logo] MFS(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[graphic omitted]
MFS(R) RESEARCH
INTERNATIONAL FUND
ANNUAL REPORT o AUGUST 31, 1998
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 17
Notes to Financial Statements ............................................. 24
Independent Auditors' Report .............................................. 31
Trustees and Officers ..................................................... 33
- -------------------------------------------------------------------------------
HIGHLIGHTS
- -------------------------------------------------------------------------------
o FOR THE PERIOD ENDED AUGUST 31, 1998, CLASS A SHARES OF THE FUND PROVIDED A
TOTAL RETURN AT NET ASSET VALUE OF 3.92%, CLASS B SHARES 3.62%, CLASS C
SHARES 3.62%, AND CLASS I SHARES 4.13%. (PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. SEE PERFORMANCE SUMMARY FOR MORE INFORMATION.)
o THE FUND HAD NO DIRECT INVESTMENT IN RUSSIA AND HAS EXITED THE ASIAN MARKET
TO PURSUE BETTER VALUES IN OTHER STOCKS AROUND THE WORLD. IN JAPAN, THE FUND
HAS CONCENTRATED STRICTLY ON LARGE, EXPORT-DRIVEN COMPANIES WITH GLOBAL
FRANCHISES, SUCH AS CANON AND SONY.
o THE FUND'S MANAGEMENT COMMITTEE FEELS THAT EUROPEAN STOCKS, ESPECIALLY THOSE
IN THE STEADY EARNING SECTORS SUCH AS CONSUMER STAPLES AND DEFENSE,
REPRESENT THE BEST PROSPECTS FOR EARNINGS GROWTH GIVEN THE UNCERTAIN
ENVIRONMENT FOR CORPORATE EARNINGS.
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- -------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
In the coming year, MFS will celebrate its 75th anniversary. In 1924, our
Massachusetts Investors Trust, the nation's first mutual fund, opened to the
public and helped launch a revolution in investing that continues today. In the
75 years since, MFS has grown with its investors not only through bear markets,
economic and political turmoil, wars, and oil shortages, but also through long
periods of growth and prosperity. We are very proud of our record of investment
management and service to shareholders throughout our history.
One of the best ways for us to serve our shareholders is to help them understand
some of the reasons behind developments in the investment markets and, when
necessary, to take a more cautious outlook. This is particularly important
during periods of market volatility such as we are experiencing this year, when
equity prices do not follow a straight course. In light of this summer's
volatility, it is clear that equity valuations have risen to a point at which
stock prices have become vulnerable to changes in the investment environment
such as a slowing economy, earnings disappointments, and global economic and
political turmoil. While we continue to hold a favorable long-term outlook for
the equity markets, we also believe that this market correction is overdue and
could continue for several months. However, in our view, this is a healthy
near-term event that should rid the financial system of excesses that have
developed.
Currently, equity investors seem to be focused on the slowdown in corporate
earnings and, more recently, on the continuing uncertainty overseas,
particularly in Russia and some of the emerging markets. In the second quarter,
for example, average earnings growth for companies in the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock total
return performance, was about 3%, well below what people were expecting a year
ago. As a result of this and continuing concerns about Asia and emerging
markets, the stock markets pulled back from the record-high levels set in
mid-July. This retreat has helped correct some -- but not all -- of the
overvaluations that have been building in the markets for some time. Prior to
July, equity prices had been rising without a corresponding increase in
corporate earnings. As a result, price-to-earnings (P/E) ratios, or the amount
investors paid for stocks in relation to companies' earnings per share, also
went up. A year ago this July, the average P/E ratio for stocks in the S&P 500
stood at approximately 23; this July, it was at about 28, and it declined to
approximately 25 by early September. If this summer's downturn helps create more
reasonable valuations, we believe it could provide a sounder long-term
foundation for the equity markets. On another positive note, interest rates have
been relatively stable for several months as inflation has remained low. In an
environment of low interest rates, stocks become more attractive than most
fixed-income investments, while low inflation helps control companies' costs.
Internationally, the economic turmoil in Asia continues to be a concern to us,
while Russia is facing political gridlock and economic uncertainty and Latin
American economies are feeling substantial pressure. We believe the United
States has yet to see the full impact of this crisis. There have been brief
periods of improvement in a few countries but, for the most part, most of these
economies are still very weak and the situation could turn worse before getting
better. At the same time, the Asian turmoil has had the beneficial effect of
moderating U.S. growth and keeping inflation in check, which has helped
establish a favorable interest-rate environment.
Countering the situation in Asia has been the growing strength of European
economies, although European equity markets have also seen some volatility this
summer. But as these countries move toward economic union, they are benefiting
from a convergence of interest rates to lower levels, a rapid expansion of
manufacturing and service businesses, and an increasingly strong consumer
sector. This has helped American exporters offset some of their Asian losses
while providing investment opportunities in developed and emerging European
markets.
Given the uncertainty arising from these conflicting developments, we believe
that it is prudent to remind investors of the need to take a long-term view and
to diversify their investments across a range of asset classes. This includes
portfolios that focus on bond and international investments as well as on the
U.S. stock market. At MFS, we also believe our decades-long commitment to
original, company-by-company research gives us an advantage by helping us find
companies that we think can keep growing or gain market share during periods of
turmoil. To help fulfill this commitment and to provide the broadest possible
coverage of industry sectors and individual companies, MFS continues to increase
its number of full-time research analysts, who thoroughly investigate each
company's earnings potential and position in its industry as well as the overall
prospects for that industry.
We also use active portfolio management on the fixed-income side, using our
extensive research and credit analysis to help reduce the potential for price
declines and enhance the opportunity for appreciation. Every year, both
fixed-income and equity managers meet with thousands of credit issuers and
companies. They also attend many presentations, closely follow sources of
industry research, and keep track of competitors.
As we have for 75 years, we will continue to apply this discipline of thorough,
bottom-up research to both the equity and fixed-income markets because we
believe it offers the best potential for providing favorable long-term
performance for our shareholders -- regardless of changes in the overall market
environment.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
September 14, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Kevin R. Parke]
Kevin R. Parke
For the period ended August 31, 1998, Class A shares of the Fund provided a
total return of 3.92%, Class B and Class C shares 3.62%, and Class I shares
4.13%. These returns, which include the reinvestment of distributions but
exclude the effects of any sales charges, compare to a 0.13% return for the
Morgan Stanley Capital International (MSCI) Europe, Australia, Far East (EAFE)
Index, an unmanaged index of international stocks.
Q. WHAT ARE SOME FACTORS THAT CONTRIBUTED TO THE FUND'S PERFORMANCE OVER THE
PAST YEAR?
A. One of the main contributors to the Fund's performance this year was our
relatively heavier weighting in European stocks. Specifically, we got strong
performances from a number of European financial services companies
throughout the year, including Skandia, Allied Irish Bank, and Lloyd's of
London. Other contributors included Henkel and AKZO Nobel in the European
chemical industry. Growing consumer confidence across Europe also helped
stocks such as Benckiser in the Netherlands.
Q. WHAT IMPACT HAS THE ONGOING ECONOMIC CRISES IN ASIA AND RUSSIA HAD ON THE
FUND?
A. The Fund had no direct investments in Russia, and exposure to Southeast Asia
has been relatively light. In Latin America, where the portfolio has
invested 2.0% of assets, share prices were hurt by the Asian contagion and
concerns over a major devaluation of the Brazilian currency. In Europe, the
financial services sector has felt pressure due to the possible impact of
Russian loan default on those companies' export businesses.
Q. WHAT'S THE STATE OF AFFAIRS IN LATIN AMERICAN MARKETS TODAY, AND HOW IS
THE FUND INVESTED THERE?
A. The Fund has limited investments in Latin America. We have invested in
Telebras, a Brazilian telecommunications company that we feel is well
positioned to exploit the lack of advanced voice and data communication
facilities in the region. This stock provides a strong fundamental
foundation and, given the macroeconomic uncertainty in the region, is also
trading at very reasonable valuations. We think the long-term outlook for
the stock is compelling and we're committed to the company.
Q. HOW WILL THE CURRENT EQUITY MARKET VOLATILITY IMPACT THE WAY YOU MANAGE
THE FUND?
A. It is important to emphasize that we don't attempt to time markets. Our
objective is to find companies that have good growth prospects and that we
believe are trading below fair value. The management of this Fund will not
change its response to overall market volatility. If anything, the current
environment underscores our commitment to the type of detailed research that
can help us uncover companies that can deliver predictable earnings growth
under a variety of market conditions.
Q. WHAT ARE SOME OF THE FUND'S CURRENT BEST IDEAS?
A. Our second largest holding, Allied Irish Bank, is an excellent story. The
company receives about 55% of its earnings from its business in Ireland and
has been helped by the strength of the Irish economy. About 45% of its
revenues come from its interests in the United States, where it has been
acquiring smaller banks, particularly in the mid-Atlantic states, and
intelligently consolidating its purchases to cut costs and to create a
strong international organization with steady earnings growth and a very
clean balance sheet. The bank is experiencing 15% to 18% earnings growth,
which is above its European peer group average, yet the stock is currently
trading at a significant discount.
Another of our best ideas is British Aerospace, a U.K. defense company. The
company has a strong future order book and, given the noncyclical nature of
the defense industry, we feel that earnings should be secure regardless of
the economic environment.
Q. PLEASE DISCUSS SOME OF THE MORE SIGNIFICANT CHANGES TO THE FUND'S HOLDINGS
OVER THE PAST 12 MONTHS.
A. As the Asian economic situation deteriorated to a point at which the
earnings of even good companies were being affected, we shifted our
investments out of those companies. More specifically, we subtracted our
investments in Asian telecommunications and hotel/leisure stocks and moved
those assets to fund either new investments or to enhance positions in
existing investments in areas in which we find value, specifically in
European companies. We've added to positions in large multinational
companies such as Benkiser and ING, a financial services organization that
is leveraging its acquisitions in Europe and the United States to strengthen
its global franchise at the retail banking and insurance levels.
Q. IN WHAT INDUSTRY SECTORS ARE YOU FINDING THE MOST PROMISING STOCKS?
A. Again, we're finding good companies in Europe's financial services and
consumer products markets, both of which are benefiting from a boost in
consumer confidence and spending. We have found attractive stocks in the
telecommunications sector. As cellular communications use has begun to surge
in Europe, we've selected companies such as Mannesmann and Telecom Italia
that we feel are best positioned to exploit the wave of deregulation that is
allowing smaller, more nimble organizations to compete successfully with
long-entrenched, formerly nationalized telephone companies.
Q. WHAT SORT OF CHANGES HAVE YOU MADE WITH REGARD TO THE COMMITTEE OF
INTERNATIONAL RESEARCH ANALYSTS?
A. We've added significant resources to our management committee in the past
year, more than doubling our number of international analysts from five to
11. We've added offices in Singapore and Tokyo and increased our group in
Asia to five analysts who primarily focus on Japanese companies but who also
track companies and opportunities in Southeast Asia. In Europe, we doubled
staff in our London office as well, and we've added another analyst to our
Americas team who follows companies in Canada and Latin America. As always,
our Boston-based analysts research the global scene within their particular
areas of industry or sector expertise. For instance, certain commodities
companies, such as oil and gas concerns, are players on a global basis, more
so than in the countries in which their headquarters are located. So
analysts who cover those companies must be well versed in the international
environment in which their companies compete.
Q. WHAT ARE THE CRITICAL FACTORS SHAPING THE ENVIRONMENT FOR INTERNATIONAL
INVESTMENT GOING FORWARD?
A. Low inflation and low interest rates, two key drivers of the bull market,
have been maintained, despite the troubles in markets such as Russia and
Asia. So we feel that, while earnings growth will slow as a result of a
ripple effect from these areas, the international investment environment
looks relatively positive. In this enviroment, we will emphasize companies
that can deliver predictable earnings. There will still be a strong drive
toward globalization and an effort to expand or link markets worldwide. We
believe that companies that can restructure and consolidate to increase
efficiency in this environment should emerge as winners.
Q. WHAT WILL BE THE IMPACT OF EUROPEAN MONETARY UNION (EMU) ON THIS FUND?
A. We feel that EMU will provide a fundamental shift in the way that investors
look at European companies. With a unified currency, investment risks due to
currency fluctuations diminish. Also, companies will begin to compete across
geographical boundaries as the cost of doing business evens out across
Europe. Investor focus will be on individual companies rather than
countries. So the question for the investor will no longer be "What's the
best company in Germany?" but "What is the best bank in all of Europe?" MFS
has been investing this way since our research department was established in
1932. Therefore, we think that we may be ahead of the pack in picking
winning stocks in the EMU era.
/s/ Kevin R. Parke
Kevin R. Parke
Director of Equity Research
The committee of MFS research analysts is responsible for the day-to-day
management of the Fund under the general supervision of Mr. Parke.
The opinions expressed in this report are those of the Director of Equity
Research and are only through the end of the period of the report as stated on
the cover. His views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
<PAGE>
- -------------------------------------------------------------------------------
FUND FACTS
- -------------------------------------------------------------------------------
OBJECTIVE: SEEKS CAPITAL APPRECIATION.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 2, 1997
CLASS INCEPTION: CLASS A JANUARY 2, 1997
CLASS B JANUARY 2, 1998
CLASS C JANUARY 2, 1998
CLASS I JANUARY 2, 1997
SIZE: $8.8 MILLION NET ASSETS AS OF AUGUST 31, 1998
PRIOR TO FEBRUARY 28, 1998, THE FUND WAS AVAILABLE ONLY TO MFS EMPLOYEES.
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and reflect
the percentage change in net asset value, including reinvestment of dividends.
Benchmark comparisons are unmanaged and do not reflect any fees or expenses. The
performance of other share classes will be greater than or less than the line
shown. (See Notes to Performance Summary for more information.)
It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from January 2, 1997, through August 31, 1998)
MFS Research MSCI Consumer
International EAFE Price Index
Fund - Class A Index -- U.S.
-------------- ------ ------
1/97 $ 9,425 $10,000 $10,000
8/97 10,329 10,476 10,139
8/98 10,735 10,490 10,303
AVERAGE ANNUAL TOTAL RETURNS THROUGH AUGUST 31, 1998
CLASS A
1 Year 10 Years/Life*
- -------------------------------------------------------------------------------
Average Annual Total Return +3.92% +8.16%
- -------------------------------------------------------------------------------
SEC Results -2.05% +4.37%
- -------------------------------------------------------------------------------
CLASS B
1 Year 10 Years/Life*
- -------------------------------------------------------------------------------
Average Annual Total Return +3.62% +7.96%
- -------------------------------------------------------------------------------
SEC Results -0.41% +5.41%
- -------------------------------------------------------------------------------
CLASS C
1 Year 10 Years/Life*
- -------------------------------------------------------------------------------
Average Annual Total Return +3.62% +7.96%
- -------------------------------------------------------------------------------
SEC Results +2.61% +7.96%
- -------------------------------------------------------------------------------
CLASS I
1 Year 10 Years/Life*
- -------------------------------------------------------------------------------
Average Annual Total Return +4.13% +8.28%
- -------------------------------------------------------------------------------
COMPARATIVE INDICES
1 Year 10 Years/Life*
- -------------------------------------------------------------------------------
MSCI EAFE Index+ +0.13% +2.92%
- -------------------------------------------------------------------------------
Consumer Price Index+# +1.61% +1.81%
- -------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
January 2, 1997, through August 31, 1998.
** 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).
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 5.75% sales charge. Class B
share ("B") SEC results reflect the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C shares ("C") have
no initial sales charge but, like B, have higher annual fees and expenses than
A. C SEC results reflect the 1% CDSC applicable to shares redeemed within 12
months. Class I shares ("I") have no sales charge or Rule 12b-1 fees and are
only available to certain institutional investors.
B and C results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of B and C. Because
operating expenses of B and C are higher than those of A, B and C performance
generally would be lower than A performance. The A performance included in the B
and C SEC performance has been adjusted to reflect the CDSC generally applicable
to B and C rather than the initial sales charge generally applicable to A.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been higher
than A performance. The A performance included in the I performance has been
adjusted to reflect the fact that I have no initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details. All results are
historical and assume the reinvestment of dividends and capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably affected
by changes in interest rates and currency exchange rates, market conditions, and
the economic and political conditions of the countries where investments are
made. These risks may increase share price volatility.
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1998
FIVE LARGEST STOCK SECTORS
FINANCIAL SERVICES 22.3%
TECHNOLOGY 11.8%
CONSUMER STAPLES 10.1%
INDUSTRIAL GOODS AND SERVICES 9.3%
AUTOS AND HOUSING 7.8%
TOP 10 STOCK HOLDINGS
ING GROEP N.V. 3.1% BRITISH PETROLEUM PLC 1.9%
Dutch financial services company Oil exploration and production company
ALLIED IRISH BANKS PLC 2.3% LUCASVARITY PLC 1.9%
Financial services company U.K. auto parts company
HENKEL KGAA 2.2% GLAXO WELLCOME PLC 1.8%
German consumer products company U.K. pharmaceuticals company
BENCKISER N.V. "B" 2.1% ISTITUTO MOBILIARE ITALIANO S.P.A. 1.8%
Dutch consumer products company Italian telecommunications company
SKANDIA FORSAKRINGS AB 2.1% CANADIAN NATIONAL RAILWAY CO. 1.8%
Swedish insurance company Railway and transportation company
Portfolio information is as of August 31, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- August 31, 1998
Stocks - 97.6%
- -------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
Foreign Stocks - 96.3%
Australia - 1.8%
HIH Winterthur International Holdings Ltd.
(Insurance) 81,200 $ 60,349
QBE Insurance Group Ltd. (Insurance) 29,947 95,670
-----------
$ 156,019
- -------------------------------------------------------------------------------
Bermuda
Global Crossing Ltd. (Telecommunications) 119 $ 2,112
- -------------------------------------------------------------------------------
Brazil - 2.2%
Companhia Paranaense de Energia, ADR
(Utilities - Electric) 7,421 $ 40,815
Telecomunicacoes Brasileiras S.A., ADR
(Telecommunications) 2,113 149,363
-----------
$ 190,178
- -------------------------------------------------------------------------------
Canada - 2.1%
Canadian National Railway Co. (Railroads) 3,362 $ 151,500
Legacy Hotel Real Estate Investment Trust
(Real Estate Investment Trust)*## 1,100 4,312
T. Eaton Co., Ltd. (Stores)* 5,456 33,739
-----------
$ 189,551
- -------------------------------------------------------------------------------
Chile - 0.7%
Chilectra S.A., ADR (Utilities - Electric) 1,771 $ 28,442
Embotelladora Andina S.A. (Consumer
Goods and Services) 3,414 38,194
-----------
$ 66,636
- -------------------------------------------------------------------------------
Czechoslovakia - 0.7%
Tabak AS (Tobacco) 271 $ 58,525
- -------------------------------------------------------------------------------
Finland - 1.6%
Helsingin Puhelin Oyj (Telecommunications) 1,332 $ 56,481
Pohjola Insurance Group (Insurance) 985 36,431
Tieto Corp. (Computer - Software) 1,585 50,332
-----------
$ 143,244
- -------------------------------------------------------------------------------
France - 7.2%
Alcatel Alsthom Compagnie (Telecommunications) 695 $ 112,543
Compagnie Generale de Geophysique S.A., ADR
(Oil Services)* 3,362 48,329
Sanofi S.A. (Medical and Health Products) 817 91,848
Societe Industrielle de Transports
Automobiles S.A (Sita) (Hazardous Waste) 260 60,090
Television Francaise (Entertainment) 699 103,591
Thomson CSF (Aerospace and Defense) 2,805 94,649
Total S.A., "B" (Oils) 862 86,675
Union des Assurances Federales S.A. (Insurance) 251 34,048
-----------
$ 631,773
- -------------------------------------------------------------------------------
Germany - 4.4%
Henkel KGaA (Chemicals) 2,381 $ 190,859
Mannesmann AG (Conglomerate) 571 51,614
Wella AG (Consumer Goods and Services) 162 147,357
-----------
$ 389,830
- -------------------------------------------------------------------------------
Greece - 1.3%
Athens Medic Center, GDR (Medical and
Health Technology and Services) 1,800 $ 28,216
Hellenic Telecommunication Organization
S.A., GDR (Telecommunications) 3,732 86,459
-----------
$ 114,675
- -------------------------------------------------------------------------------
Ireland - 3.9%
Allied Irish Banks PLC (Banks and Credit Cos.)* 14,426 $ 198,236
Anglo Irish Bank Corp. PLC (Banks and Credit Cos ) 59,252 141,991
-----------
$ 340,227
- -------------------------------------------------------------------------------
Italy - 7.7%
Banca Carige S.p.A. (Banks and Credit Cos.)* 7,871 $ 69,239
Banca Nazionale del Lavoro (Banks and Credit Cos) 18,690 55,897
ERG S.p.A. (Oils)* 17,038 55,856
Industrie Natuzzi S.p.A., ADR (Consumer Goods and
Services) 3,405 77,464
Istituto Mobiliare Italiano S.p.A. (Banks and
Credit Cos.) 9,998 153,820
Mediaset S.p.A. (Entertainment) 17,544 100,903
Telecom Italia Mobile Di Risp S.p.A
(Telecommunications)* 12,842 99,415
Telecom Italia S.p.A., Saving Shares
(Telecommunications) 17,314 62,686
-----------
$ 675,280
- -------------------------------------------------------------------------------
Japan - 18.8%
Aeon Credit Service Co. Ltd. (Financial Services) 1,560 $ 65,469
Bridgestone Corp. (Tire and Rubber) 3,000 66,030
Canon, Inc. (Office Equipment) 4,000 81,104
Fujimi, Inc. (Electronics) 2,100 68,068
Keyence Corp. (Electronics) 710 71,553
Kinki Coca-Cola Bottling Co. (Beverages) 5,000 53,786
Kirin Beverage Corp. (Beverages) 2,000 33,687
Meitec Corp. (Computer Software - Systems) 2,800 93,928
Nippon Broadcasting System (Broadcasting) 1,000 39,278
Nippon Telephone & Telegraph Co. (Utilities -
Telephone) 6 45,435
NTT Data Corp (Telecommunications) 23 82,689
Olympus Optical Co. (Conglomerate) 9,000 96,815
Osaka Sanso Kogyo Ltd. (Chemicals) 15,000 24,416
Rohm Co. (Electronics) 1,000 101,911
Secom Co. (Consumer Goods and Services) 2,000 115,216
Sony Corp. (Electronics) 900 65,669
Sony Corp., ADR (Electronics) 1,537 108,647
Takeda Chemical Industries (Medical and Health
Products) 4,000 104,459
TDK Corp., ADR (Electronics) 1,660 113,295
Terumo Corp. (Pharmaceuticals) 8,000 150,885
Ushio, Inc. (Electronics) 9,000 75,159
-----------
$ 1,657,499
- -------------------------------------------------------------------------------
Malaysia - 0.1%
Tanjong PLC (Entertainment) 6,000 $ 5,339
- -------------------------------------------------------------------------------
Mexico - 0.5%
Telefonos de Mexico S.A., ADR (Telecommunications) 1,234 $ 44,038
- -------------------------------------------------------------------------------
Netherlands - 12.6%
Akzo Nobel N.V. (Chemicals) 2,796 $ 114,993
Benckiser N.V. "B" (Consumer Goods and Services)* 3,136 179,177
Brunel International N.V. (Human Resources)* 2,864 95,154
Fugro N.V. (Engineering)* 2,557 79,806
Hunter Douglas N.V., ADR (Consumer Goods and
Services)* 2,696 111,559
IHC Caland N.V. (Marine Equipment) 1,018 48,888
ING Groep N.V. (Financial Services) 4,510 266,082
Koninklijke Ahold NV (Supermarkets) 1,118 32,924
Koninklijke Ahrend Groep N.V. (Consumer Goods and
Services) 4,929 112,897
Van der Moolen Holding N.V. (Financial Services) 876 71,659
-----------
$ 1,113,139
- -------------------------------------------------------------------------------
Portugal - 3.4%
Banco Pinto & Sotto Mayor, S.A
(Banks and Credit Cos.) 7,430 $ 142,525
Banco Pinto & Sotto Mayor, S.A. New Shares
(Banks and Credit Cos.) 344 6,599
BPI - SGPS, S.A. (Banks and Credit Cos.) 2,779 90,228
Portugal Telecom S.A. (Utilities - Telephone) 1,303 59,631
-----------
$ 298,983
- -------------------------------------------------------------------------------
Singapore - 0.1%
Hong Leong Finance Ltd. (Finance)+ 14,000 $ 8,293
- -------------------------------------------------------------------------------
Spain - 0.7%
Telefonica de Espana (Utilities - Telephone) 1,578 $ 60,380
- -------------------------------------------------------------------------------
Sweden - 5.9%
Saab AB, "B" (Aerospace)* 11,829 $ 98,517
Securitas AB (Security Services) 2,181 112,240
Skandia Forsakrings AB (Insurance) 12,504 176,415
Volvo AB (Automotives) 4,945 137,076
-----------
$ 524,248
- -------------------------------------------------------------------------------
Switzerland - 4.0%
Barry Callebaut AG (Food and Beverage Products)* 284 $ 64,836
Hiestand Holding AG (Food Products)* 166 52,826
Julius Baer Holdings (Banks and Credit Cos.) 49 135,593
Kuoni Reisen Holdings AG (Transportation) 16 54,237
Nestle SA (Food and Beverage Products) 25 46,386
-----------
$ 353,878
- -------------------------------------------------------------------------------
United Kingdom - 16.6%
Booker PLC (Food - Wholesale) 23,340 $ 83,311
British Aerospace (Aerospace and Defense)* 15,279 98,834
British Petroleum PLC (Oils)* 13,231 167,070
Glaxo Wellcome PLC (Pharmaceuticals) 5,207 157,066
Jarvis Hotels PLC (Restaurants and Lodging)+ 25,772 51,826
Kwik-Fit Holdings PLC (Automotive Repair Centers) 11,917 77,486
Lloyds TSB Group PLC (Banks and Credit Cos.) 9,297 111,085
LucasVarity PLC (Automotive) 46,844 166,422
Next PLC (Stores) 13,185 97,883
Sema Group PLC (Computer Software - Systems) 12,304 112,374
Taylor Nelson Sofres PLC (Market Research) 70,262 131,874
Thomson Travel Group PLC (Travel Services)* 26,314 60,413
Tomkins PLC (Conglomerate) 5,461 22,604
Williams (Conglomerate) 19,779 116,010
Williams, "B" (Conglomerate)* 16,112 8,640
-----------
$ 1,462,898
- -------------------------------------------------------------------------------
Total Foreign Stocks $ 8,486,745
- -------------------------------------------------------------------------------
U.S. Stocks - 1.3%
Electronics - 0.5%
Amkor Technology, Inc.* 9,773 $ 45,200
- -------------------------------------------------------------------------------
Telecommunications - 0.8%
Cellular Communications International* 200 $ 10,600
Global TeleSystems Group, Inc.* 1,652 52,864
-----------
$ 63,464
- -------------------------------------------------------------------------------
Total U.S. Stocks $ 108,664
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $9,676,887) $ 8,595,409
- -------------------------------------------------------------------------------
Short-Term Obligations - 6.6%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 9/01/98,
at Amortized Cost $ 580 $ 580,000
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $10,256,887) $ 9,175,409
Other Assets, Less Liabilities - (4.2)% (365,616)
- -------------------------------------------------------------------------------
Net Assets - 100.0% $ 8,809,793
- -------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
AUGUST 31, 1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $10,256,887) $9,175,409
Cash 10,644
Foreign currency, at value (identified cost, $14,820) 14,751
Receivable for Fund shares sold 93,460
Receivable for investments sold 6,119
Net receivable for foreign currency exchange contracts
subject to master netting agreements 50
Dividends and interest receivable 13,138
Other assets 17
----------
Total assets $9,313,588
----------
Liabilities:
Payable for investments purchased $ 49,709
Payable for Fund shares reacquired 438,658
Net payable for forward currency exchange contracts to sell 407
Payable to affiliates -
Management fee 742
Distribution and service fee 4,251
Accrued expenses and other liabilities 10,028
----------
Total liabilities $ 503,795
----------
Net assets $8,809,793
==========
Net assets consist of:
Paid-in capital $9,691,354
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (1,081,793)
Accumulated undistributed net realized gain on investments
and foreign currency transactions 193,508
Accumulated undistributed net investment income 6,724
----------
Total $8,809,793
==========
Shares of beneficial interest outstanding 861,378
=======
Class A shares:
Net asset value per share
(net assets of $3,740,584 / 365,409 shares of beneficial
interest outstanding) $10.24
======
Offering price per share (100 / 94.25) $10.86
======
Class B shares:
Net asset value and offering price per share
(net assets of $3,140,868 / 307,712 shares of beneficial
interest outstanding) $10.21
======
Class C shares:
Net asset value and offering price per share
(net assets of $729,235 / 71,427 shares of beneficial
interest outstanding) $10.21
======
Class I shares:
Net asset value, offering price, and redemption price per
share (net assets of $1,199,106 / 116,830 shares of
beneficial interest outstanding) $10.26
======
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 AUGUST 31, 1998
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 73,916
Interest 18,252
Foreign taxes withheld (8,381)
-----------
Total investent income $ 83,787
-----------
Expenses -
Management fee $ 41,217
Shareholder servicing agent fee 4,776
Distribution and service fee (Class A) 6,698
Distribution and service fee (Class B) 7,346
Distribution and service fee (Class C) 1,961
Administrative fee 599
Custodian fee 12,815
Printing 22,692
Postage 413
Auditing fees 14,200
Legal fees 3,194
Registration fees 47,599
Miscellaneous 607
-----------
Total expenses $ 164,117
Reduction of expenses by investment adviser and distributor (89,604)
Fees paid indirectly (554)
-----------
Net expenses $ 73,959
-----------
Net investment income $ 9,828
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 194,503
Foreign currency transactions (1,032)
-----------
Net realized gain on investments and foreign
currency transactions $ 193,471
-----------
Change in unrealized appreciation (depreciation) -
Investments $(1,033,617)
Translation of assets and liabilities in foreign
currencies 157
-----------
Net unrealized loss on investments and foreign
currency translation $(1,033,460)
-----------
Net realized and unrealized loss on investments and
foreign currency translation $ (839,989)
-----------
Decrease in net assets from operations $ (830,161)
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 1998 AUGUST 31, 1997*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 9,828 $ 10,672
Net realized gain on investments and foreign currency
transactions 193,471 239,440
Net unrealized loss on investments and foreign currency
translation (1,033,460) (48,333)
----------- -----------
Increase (decrease) in net assets from operations $ (830,161) $ 201,779
----------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $ (5,588) $ --
From net investment income (Class I) (5,193) --
From net realized gain on investments and foreign currency
transactions (Class A) (125,647) --
From net realized gain on investments and foreign currency
transactions (Class I) (116,751) --
----------- -----------
Total distributions declared to shareholders $ (253,179) $ --
----------- -----------
Net increase in net assets from Fund share transactions $ 7,557,045 $ 2,134,309
----------- -----------
Total increase in net assets $ 6,473,705 $ 2,336,088
Net assets:
At beginning of period 2,336,088 --
----------- -----------
At end of period (including accumulated undistributed net
investment income of $6,724 and $10,672, respectively) $ 8,809,793 $ 2,336,088
=========== ===========
*For the period from the commencement of the Fund's investment operations, January 2, 1997, through August 31, 1997.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
1998 1997*
- ---------------------------------------------------------------------------------------------------
CLASS A
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.95 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.03 $ 0.06
Net realized and unrealized gain on investments and
foreign currency transactions### 0.35 0.89
------ ------
Total from investment operations $ 0.38 $ 0.95
------ ------
Less distributions declared to shareholders -
From net investment income $
$(0.05) --
From net realized gain on investments and foreign
currency transactions (1.04) --
------ ------
$
Total distributions declared to shareholders
$(1.09) --
------ ------
Net asset value - end of period $10.24 $10.95
====== ======
Total return(+) 3.92% 9.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.76% 1.68%+
Net investment income 0.28% 0.71%+
Portfolio turnover 89% 137%
Net assets at end of period (000 omitted) $3,741 $1,314
* For the period from the commencement of the Fund's investment operations, 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.
### The per share amount is not in accordance with the net realized and unrealized loss for the period
because of the timing of sales of Fund shares and the amount of per share realized and unrealized
gains and losses at such time.
(+) 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) For the year ended August 31, 1998, the investment adviser, subject to reimbursement by the Fund,
voluntarily agreed to maintain the other expenses of the Fund, exclusive of management, distribution,
and service fees, at not more than 0.40% of average daily net assets. For the period ended August
31, 1997, the investment adviser voluntarily agreed to maintain the other expenses of the Fund at not
more than 1.75% of the Fund's average daily net assets. The investment adviser, distributor, and
shareholder servicing agent did not impose any of their fees for the period ended August 31, 1997. If
these fees had not been waived and actual expenses had been over/under this limitation, the net
investment loss per share and the ratios would have been:
Net investment loss $(0.19) $(0.01)
Ratios (to average net assets):
Expenses## 3.99% 3.31%+
Net investment loss (1.94)% (0.91)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- ---------------------------------------------------------------------------
PERIOD ENDED
AUGUST 31,
1998**
- ---------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 9.93
------
Income from investment operations# -
Net investment loss(S) $(0.03)
Net realized and unrealized gain on investments and foreign
currency transactions### 0.31
------
Total from investment operations $ 0.28
------
Net asset value - end of period $10.21
======
Total return 2.82%++ Ratios (to average net assets)/
Supplemental data(S):
Expenses 2.41%+
Net investment loss (0.29)%+
Portfolio turnover 89%
Net assets at end of period (000 omitted) $3,141
** For the period from the inception of Class B, January 2, 1998, through
August 31, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
### The per share amount is not in accordance with the net realized and
unrealized loss for the period because of the timing of sales of Fund
shares and the amount of per share realized and unrealized gains and
losses at such time.
(S) Subject to reimbursement by the Fund, the investment adviser
voluntarily agreed to maintain the other expenses of the Fund,
exclusive of management, distribution, and service fees, at not more
than 0.40% of average daily net assets. To the extent actual expenses
were over/under this limitation, the net investment loss per share
and the ratios would have been:
Net investment loss $(0.24)
Ratios (to average net assets):
Expenses## 4.56%+
Net investment loss (2.43)%+
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- ---------------------------------------------------------------------------
PERIOD ENDED
AUGUST 31,
1998***
- ---------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 9.93
------
Income from investment operations# -
Net investment loss(S) $(0.01)
Net realized and unrealized gain on investments and foreign
currency transactions### 0.29
------
Total from investment operations $ 0.28
------
Net asset value - end of period $10.21
======
Total return 2.82%++ Ratios (to average net assets)/
Supplemental data(S):
Expenses 2.40%+
Net investment loss (0.10)%+
Portfolio turnover 89%
Net assets at end of period (000 omitted) $729
*** For the period from the inception of Class C, January 2, 1998,
through August 31, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees
paid indirectly.
### The per share amount is not in accordance with the net realized and
unrealized loss for the period because of the timing of sales of Fund
shares and the amount of per share realized and unrealized gains and
losses at such time.
(S) Subject to reimbursement by the Fund, the investment adviser voluntarily
agreed to maintain the other expenses of the Fund, exclusive of management,
distribution, and service fees, at not more than 0.40% of average daily
net assets. To the extent actual expenses were over/under this limitation,
the net investment loss per share and the ratios would have been:
Net investment loss $(0.22)
Ratios (to average net assets):
Expenses## 4.55%+
Net investment loss (2.24)%+
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
1998 1997****
- --------------------------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.95 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.06 $ 0.07
Net realized and unrealized gain on investments and
foreign currency transactions### 0.34 0.88
------ ------
Total from investment operations $ 0.40 $ 0.95
------ ------
Less distributions declared to shareholders -
From net investment income $(0.05) $ --
From net realized gain on investments and foreign
currency transactions (1.04) --
------ ------
Total distributions declared to shareholders $(1.09) $ --
------ ------
Net asset value - end of period $10.26 $10.95
====== ======
Total return 4.13% 9.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.40% 1.68%+
Net investment income 0.53% 0.85%+
Portfolio turnover 89% 137%
Net assets at end of period (000 omitted) $1,199 $1,022
**** For the period from the commencement of the Fund's investment
operations, 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.
### The per share amount is not in accordance with the net realized and unrealized loss for
the period because of the timing of sales of Fund shares and the amount of per share realized
and unrealized gains and losses at such time.
(S) For the year ended August 31, 1998, the investment adviser, subject to reimbursement by the Fund,
voluntarily agreed to maintain the other expenses of the Fund, exclusive of management, distribution,
and service fees, at not more than 0.40% of average daily net assets. For the period ended August 31,
1997, the investment adviser voluntarily agreed to maintain the other expenses of the Fund at not
more than 1.75% of the Fund's average daily net assets. The investment adviser and shareholder
servicing agent did not impose any of their fees for the period ended August 31, 1997. If these
fees had not been waived and actual expenses had been over/under this limitation, the net investment
loss per share and the ratios would have been:
Net investment loss $(0.15) $ --
Ratios (to average net assets):
Expenses## 3.55% 2.81%+
Net investment loss (1.61)% (0.28)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Research International 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. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Debt securities (other than
short-term obligations which mature in 60 days or less), including 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. 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 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 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 discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend 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 month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Fund. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. 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 net realized gains. During
the year ended August 31, 1998, $2,995 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, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 1.00% 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 0.40% of average daily net assets. 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, 1998, the aggregate unreimbursed expenses owed to MFS by the Fund
amounted to $79,982.
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 are currently not receiving any
payments for their services to the Fund.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee at
the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$9,682 for the year ended August 31, 1998, 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 paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class A shares
which are attributable to that securities dealer and a distribution fee to MFD
of up to 0.10% per annum of the Fund's average daily net assets attributable to
Class A shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $1,334 for the year ended August 31, 1998.
Fees incurred under the distribution plan during the year ended August 31, 1998,
were 0.35% of average daily net assets attributable to Class A shares on an
annualized basis. Prior to January 1, 1998, MFD voluntarily waived the
distribution and service fee for Class A shares.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be consideration for services
rendered by the dealer with respect to Class B and Class C shares. MFD retains
the service fee for accounts not attributable to a securities dealer, which
amounted to $0 for both Class B and Class C shares for the year ended August 31,
1998. Fees incurred under the distribution plan during the year ended August 31,
1998, was 1.00% of average daily net assets attributable to both Class B and
Class C shares on an annualized basis.
Certain Class A shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended August 31, 1998,
were $0, $0, and $581 for Class A, Class B, and Class C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.1125%. Prior to January 1, 1998, the fee was calculated as a percentage of the
average daily net assets at an effective annual rate of 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$10,676,034 and $3,511,468, 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 $10,277,662
-----------
Gross unrealized depreciation $(1,221,855)
Gross unrealized appreciation 119,602
-----------
Net unrealized depreciation $(1,102,253)
===========
(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>
<CAPTION>
Class A Shares
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997*
------------------------------------ ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 470,158 $ 5,458,261 145,874 $ 1,462,123
Shares issued to shareholders
in reinvestment of
distributions 12,095 114,270 -- --
Shares reacquired (236,784) (2,697,790) (25,934) (255,253)
-------- ----------- ------- -----------
Net increase 245,469 $ 2,874,741 119,940 $ 1,206,870
======== =========== ======= ===========
<CAPTION>
Class B Shares
PERIOD ENDED AUGUST 31, 1998**
------------------------------------
SHARES AMOUNT
------------------------------------
<S> <C> <C>
Shares sold 370,461 $ 4,311,689
Shares issued to shareholders
in reinvestment of
distributions 19 225
Shares reacquired (62,768) (674,423)
-------- -----------
Net increase 307,712 $ 3,637,491
======== ===========
* For the period from the commencement of the Fund's investment operations, January 2, 1997, through August 31, 1997.
** For the period from the inception of Class B and Class C, January 2, 1998, through August 31, 1998.
<CAPTION>
Class C Shares
PERIOD ENDED AUGUST 31, 1998**
------------------------------------
SHARES AMOUNT
------------------------------------
<S> <C> <C>
Shares sold 92,989 $ 1,074,271
Shares reacquired (21,562) (257,534)
-------- -----------
Net increase 71,427 $ 816,737
======== ===========
<CAPTION>
Class I Shares
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997***
------------------------------------ ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 42,939 $ 476,825 100,754 $ 1,010,565
Shares issued to shareholders
in reinvestment of
distributions 12,558 117,015 -- --
Shares reacquired (32,032) (365,764) (7,389) (83,126)
-------- ----------- ------- -----------
Net increase 23,465 $ 228,076 93,365 $ 927,439
======== =========== ======= ===========
** For the period from the inception of Class B and Class C, January 2, 1998, through August 31, 1998.
***For the period from the commencement of the Fund's investment operations, January 2, 1997, through August 31, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $805 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, 1998, was $44.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options, forward foreign currency exchange
contracts, swap agreements, and futures contracts. The notional or contractual
amounts of these instruments represent the investment the Fund has in particular
classes of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered.
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts
NET
CONTRACTS UNREALIZED
SETTLEMENT DATE CONTRACTS TO DELIVER IN EXCHANGE FOR AT VALUE DEPRECIATION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 9/25/98 MYR 86,250 $ 20,000 $ 20,407 $(407)
-----
</TABLE>
Forward foreign currency purchases under master netting agreements amounted to a
net receivable of $50 with Deutsche Bank at August 31, 1998.
Abbreviations used above to indicate amounts shown in currencies other than the
U.S. Dollar are shown below.
MYR = Malaysian Ringgit
At August 31, 1998, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At August 31, 1998, the
Fund owned the following restricted securities (constituting 0.68% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The Fund does not have the right to demand that such securities be
registered. The value of these securities is determined by valuations furnished
by dealers or by a pricing service, or if not available, are valued at fair
value as determined in good faith by or at the direction of the Trustees.
DATE OF SHARE
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- -----------------------------------------------------------------------------
Jarvis Hotels PLC 1/7/97-7/21/98 25,772 $72,715 $51,826
Hong Leong Finance Ltd. 1/15/96-7/17/98 14,000 18,008 8,293
-------
$60,119
=======
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust I and Shareholders of MFS Research
International Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Research International Fund, including the schedule of portfolio investments, as
of August 31, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for the year then ended, and for
the period from January 2, 1997 (commencement of operations) to August 31, 1997,
and the financial highlights for the year then ended, and for the period from
January 2, 1997 (commencement of operations) to August 31, 1997. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998, 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
Research International Fund at August 31, 1998, the results of its operations
for the year then ended, the changes in its net assets for the year then ended,
and for the period from January 2, 1997 (commencement of operations) to August
31, 1997, and the financial highlights for the year then ended, and for the
period from January 2, 1997 (commencement of operations) to August 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 7, 1998
<PAGE>
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- -------------------------------------------------------------------------------
IN JANUARY 1999, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE FEDERAL
TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR 1998.
FOR THE YEAR ENDED AUGUST 31, 1998, INCOME FROM FOREIGN SOURCES WAS $72,623, AND
FOREIGN TAXES WITHHELD WERE $6,988.
---------------------------------------
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) RESEARCH INTERNATIONAL FUND
<S> <C>
Trustees Secretary
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management Assistant Secretary
James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor
Custodian
Lawrence H. Cohn, M.D. - Chief of Cardiac State Street Bank and Trust Company
Surgery, Brigham and Women's Hospital; Professor
of Surgery, Harvard Medical School Auditors
Ernst & Young LLP
The Hon. Sir J. David Gibbons, KBE - Chief
Executive Officer, Edmund Gibbons Ltd.; Investor Information
Chairman, Colonial Insurance Company, Ltd. For MFS stock and bond market outlooks, call
toll free: 1-800-637-4458 anytime from a
Abby M. O'Neill - Private Investor touch-tone telephone.
Walter E. Robb, III - President and Treasurer, For information on MFS mutual funds, call your
Benchmark Advisors, Inc. (corporate financial financial adviser or, for an information kit,
consultants); President, Benchmark call toll free: 1-800-637-2929 any business day
Consulting Group, Inc. (office services) from 9 a.m. to 5 p.m. Eastern time (or leave a
message anytime).
Arnold D. Scott* - Senior Executive
Vice President, Director, and Secretary, Investor Service
MFS Investment Management MFS Service Center, Inc.
P.O. Box 2281
Jeffrey L. Shames* - Chairman, Chief Boston, MA 02107-9906
Executive Officer, and Director,
MFS Investment Management For general information, call toll free:
1-800-225-2606 any business day from
J. Dale Sherratt - President, Insight Resources, 8 a.m. to 8 p.m. Eastern time.
Inc. (acquisition planning specialists)
For service to speech- or hearing-impaired, call
Ward Smith - Former Chairman (until 1994), toll free: 1-800-637-6576 any business day from
NACCO Industries (holding company) 9 a.m. to 5 p.m. Eastern time. (To use this
service, your phone must be equipped with a
Investment Adviser Telecommunications Device for the Deaf.)
Massachusetts Financial Services Company
500 Boylston Street For share prices, account balances, and
Boston, MA 02116-3741 exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
Distributor telephone.
MFS Fund Distributors, Inc.
500 Boylston Street World Wide Web
Boston, MA 02116-3741 www.mfs.com
Director of Equity Research
Kevin R. Parke*
Treasurer
W. Thomas London*
Assistant Treasurers
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
----------------
MFS(R) Global Asset Allocation Bulk Rate
Fund U.S. Postage
Paid
MFS
[Logo MFS(R) ----------------
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MRI-2 10/98 10M 99/299/399/999
