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[Logo]
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) STRATEGIC
GROWTH FUND
SEMIANNUAL REPORT o FEBRUARY 28, 1998
THE ROTH IRA IS NOW AVAILABLE (see page 28)
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IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS INVESTMENT MANAGEMENT(SM)
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[Photo of A. Keith Brodkin]
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On February 2, 1998, Keith Brodkin, a friend and leader to everyone at MFS, died
unexpectedly at age 62. His thoughtful letters to shareholders on the markets
and economy have been an integral part of MFS shareholder reports like this one
for many years.
Keith joined MFS in 1970 as the firm's first fixed-income manager, managing the
bond portion of MFS(R) Total Return Fund. He went on to manage our first pure
bond fund, MFS(R) Bond Fund, when it was introduced in 1974, and he was
considered a pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS in 1987 and four
years later became Chairman and Chief Executive Officer. During his stewardship,
MFS has achieved significant growth in total assets under management, rising
from some $25 billion in 1991 to the over $70 billion today entrusted to us by
three million individual and institutional investors worldwide. Under Keith's
leadership, MFS has carefully but steadily built its domestic and international
investment capabilities through the introduction of a range of new products and
a still-growing staff that now numbers over 100 equity and fixed-income
professionals.
Throughout his career, Keith was very active in a wide range of charitable
endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
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TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
A Discussion with the Portfolio Manager ................................... 4
Portfolio Manager's Profile ............................................... 6
Fund Facts ................................................................ 7
Performance Summary ....................................................... 7
Portfolio Concentration ................................................... 9
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 15
Notes to Financial Statements ............................................. 22
Roth IRA .................................................................. 28
Trustees and Officers ..................................................... 29
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HIGHLIGHTS
o FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 24.56%, CLASS B SHARES
24.05%, CLASS C SHARES 24.06%, AND CLASS I SHARES 24.74%. (SEE PERFORMANCE
SUMMARY FOR MORE INFORMATION.)
o THE COMPANIES IN THE PORTFOLIO HAVE CONTINUED TO EXHIBIT EARNINGS GROWTH
MATERIALLY HIGHER THAN THAT OF THE S&P 500. THESE COMPANIES HAVE
PROPRIETARY POSITIONS THAT GENERATE RETURN ON EQUITY HIGHER THAN THEIR
COST OF CAPITAL.
o IN LIGHT OF THE ASIAN TURMOIL, THE FUND'S TECHNOLOGY HOLDINGS HAVE BEEN
MODESTLY REDUCED. HOWEVER, THE CORE TECHNOLOGY HOLDINGS, INCLUDING
SOFTWARE, NETWORKING, AND SERVICES, HAVE BEEN MAINTAINED.
o IN FINANCIAL SERVICES, THE FUND CONTINUES TO STRESS THE ASSET MANAGERS;
THAT IS, COMPANIES THAT NOT ONLY BENEFIT FROM LOWER INTEREST RATES, BUT
ALSO FROM THE AGING OF THE POPULATION AND THE MOVEMENT OF RETIREMENT MONEY
TO PROFESSIONAL MANAGEMENT.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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LETTER FROM THE CHAIRMAN
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[Photo of Jeffrey L. Shames
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Jeffrey L. Shames
Dear Shareholders:
As investment managers we take a long-term view of the world's economies, as
well as of the stock and bond markets, and try to avoid getting caught up in
short-term fluctuations. However, it is hard to ignore unexpected events such as
the Asian economic turmoil or closely watched companies that miss their
quarterly earnings estimates. Given the potential for these events and their
possible impact on major market indices, we think it's important to offer some
perspective about recent market behavior and to let you know what MFS is doing
in an effort to provide you with favorable long-term investment performance.
The most notable recent event affecting investment markets has been the Asian
turmoil, which began in the summer of 1997 as a result of slowing growth rates
in the region and excess speculation in real estate markets. Since then, most
countries in the region have begun to implement the economic and regulatory
restructuring needed to put themselves on a stronger financial foundation. While
it may be a few years before some of these countries return to solid economic
footing, and while there will probably be a relatively short-term impact on the
U.S. economy, we believe the long-term outlook for the region is quite positive.
The Asian situation has brought home the lesson that major events can quickly
impact investment markets around the world, including those of the United
States. Although U.S. equities have enjoyed a bull market lasting more than 15
years and have continued to set records in the first several weeks of 1998,
there have been brief bouts of volatility associated with the Asian turmoil, as
well as with perceived downturns for certain industries such as technology.
While we believe the long-term outlook for the equity markets is favorable,
other, unforeseen events can trigger fairly extended periods during which
prices decline or remain relatively flat. Since no one can predict market
cycles, that makes it that much more important to find companies that can keep
growing in the face of the occasional downturn and even gain market share. For
us, this means using original, bottom-up research to examine each company's
earnings potential and position as well as the overall prospects for its
industry. To that end, MFS continues to increase the research support
available to portfolio managers of MFS funds.
On the fixed-income side, MFS uses active portfolio management based
on extensive research and credit analysis to reduce the potential for price
declines and enhance the opportunity for price appreciation. For both equity
and fixed-income managers, this means visiting and meeting with thousands of
companies and issuers of credit every year, as well as attending many
presentations and closely following sources of industry research.
We believe this approach, based on thorough research, teamwork, innovative
thinking, and the free exchange of ideas, is the best way to get the most
performance for shareholders in MFS funds -- in any market environment.
We appreciate your support 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
March 16, 1998
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JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE MASSACHUSETTS
INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED MFS IN 1983.
AFTER FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO MANAGER, HE WAS
NAMED CHIEF EQUITY OFFICER IN 1987 AND PRESIDENT AND A MEMBER OF THE BOARD
OF DIRECTORS IN 1993. MR. SHAMES WAS APPOINTED CHAIRMAN AND CHIEF
EXECUTIVE OFFICER IN FEBRUARY 1998.
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A DISCUSSION WITH THE PORTFOLIO MANAGER
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[Photo of Christian A. Felipe]
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Christian A. Felipe
For the six months ended February 28, 1998, Class A shares of the Fund
provided a total return of 24.56%, Class B shares 24.05%, Class C shares
24.06%, and Class I shares 24.74%. These returns, which include the
reinvestment of distributions but exclude the effects of any sales charges,
compare to a 17.62% return for the Standard & Poor's 500 Composite Index (the
S&P 500), a popular, unmanaged index of common stock total
return performance.
Q. WHY DO YOU THINK THE FUND HAS PERFORMED SO WELL OVER THE PAST SIX MONTHS?
A. The companies in the portfolio have continued to exhibit earnings growth
materially higher than that of the S&P 500. This is the result
of the Fund's philosophy of buying high-quality franchises with what we
regard as defensible business models. These companies have proprietary
positions that generate return on equity higher than their cost of capital,
which allows them to generate free cash flow. This is the number one
attribute we look for. Companies can use that cash flow to increase
shareholder value through acquisitions or share buybacks, or to position
themselves to be taken over. Industries that exhibit the characteristics
we're looking for include technology, media, financial services and,
recently, retail.
Q. HOW WOULD YOU DESCRIBE THE RECENT ECONOMIC AND INVESTMENT ENVIRONMENT?
A. The U.S. economic environment continues to be strong, but the recent
collapse in the Asian markets, particularly South Korea and Indonesia, will
have its effect, and we have repositioned the Fund to take advantage of
that. That means we've modestly reduced the Fund's technology stocks and
increased its retail exposure.
Q. STILL, TECHNOLOGY IS THE FUND'S LARGEST SECTOR.
A. Right. Technology represents a little over 34% of the Fund, about the same
as six months ago. The core technology holdings in software, networking,
and services have been maintained, but we have completely avoided all the
commodity-type technology companies. So Microsoft continues to be the
biggest position, at over 10% of equity assets. Computer Associates,
Oracle, Cadence Design Systems, and BMC Software are also among the top 10
holdings.
Q. WHAT CAN YOU TELL US ABOUT FINANCIAL SERVICES?
A. Here, we continue to stress the asset managers; that is, companies that
benefit from lower interest rates and, more importantly, from the aging of
the population and the movement of retirement money to professional
management. Companies like Franklin Resources, American Express, Morgan
Stanley, and Merrill Lynch form the basis of what we're trying to do. We're
trying to avoid financials that appear to have credit risk, while taking
advantage of falling interest rates.
Q. AND WHAT ABOUT MEDIA AND ENTERTAINMENT?
A. That continues to be a core holding in the portfolio. We own the major
broadcasters, as well as virtually every radio, television, and newspaper
company. This is an area that continues to benefit from market
consolidation, and that has helped us.
Q. FINALLY, WHAT ABOUT RETAIL?
A. We've increased our exposure there, primarily in the supermarket and drug
store areas. We've had big holdings in CVS and Rite Aid for some time, but
we've recently increased our position in supermarkets to take advantage of
the consolidation in the California marketplace, where Safeway has purchased
Von's and Fred Meyer has bought Ralph's and Hughes. We felt this sector was
less sensitive to the Asian situation, and so we redeployed some money from
Asia to this area because of what we felt were going to be accelerating
fundamentals resulting from the consolidation.
Q. HOW HAS ASIA AFFECTED THE FUND?
A. There have been some modest earnings disappointments. Oracle missed its
earnings estimates in the last quarter of 1997 because of the Asian crisis,
and there have been some modest disappointments in other holdings. But
Oracle felt the biggest impact.
Q. HOW MUCH EFFECT DO YOU SEE IT HAVING GOING FORWARD?
A. We don't think it will have a material impact on the Fund. We've really been
restructuring to avoid it. We don't own any semiconductor equipment
companies, which have been hit quite hard by the Asian turmoil. The Asian
crisis is not going away soon, but we've minimized its impact.
Q. WHAT DO YOU THINK MIGHT BE THE BIGGEST RISK TO THE MARKETS AND THE FUND IN
THE COMING YEAR?
A. That would be a material slowdown in the economy that would lead to earnings
disappointments. We don't see that happening right now but, if we did, we
would try to reposition the Fund to go where we thought we could find faster
earnings growth. If the economy slows, interest rates will fall and financial
stocks will do better than stronger cyclicals like technology, so we will try
to reposition accordingly.
Q. WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU ANTICIPATE GOING FORWARD,
AND HOW MIGHT THIS AFFECT SOME OF YOUR INVESTMENT DECISIONS FOR THE FUND?
A. We think it will be an environment of slow, steady growth and low inflation.
Basically, not much change from what we have now. U.S. inflation may even
decline somewhat because of the Asian crisis. For us, this will mean looking
at individual companies that we think can grow faster than the market in
general.
/s/ Christian A. Felipe
Christian A. Felipe
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
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PORTFOLIO MANAGER'S PROFILE
CHRISTIAN A. FELIPE JOINED MFS IN 1986 AND WAS NAMED INVESTMENT OFFICER
IN 1987, ASSISTANT VICE PRESIDENT -- INVESTMENTS IN 1988, VICE PRESIDENT
-- INVESTMENTS IN 1989, AND SENIOR VICE PRESIDENT IN 1996. A GRADUATE OF
THE UNIVERSITY OF CALIFORNIA, LOS ANGELES AND THE UNIVERSITY OF
PENNSYLVANIA WHARTON SCHOOL OF FINANCE AND COMMERCE, HE HAS MANAGED
MFS(R) STRATEGIC GROWTH FUND SINCE ITS INCEPTION IN 1996.
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FUND FACTS
OBJECTIVE: SEEKS CAPITAL APPRECIATION.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 2, 1996
CLASS INCEPTION: CLASS A JANUARY 2, 1996
CLASS B APRIL 11, 1997
CLASS C APRIL 11, 1997
CLASS I JANUARY 2, 1997
SIZE: $225.8 MILLION NET ASSETS AS OF FEBRUARY 28, 1998
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PERFORMANCE SUMMARY
Because mutual funds like MFS Strategic Growth Fund are designed for investors
with long-term goals, we have provided cumulative results as well as the
average annual total returns for Class A, Class B, Class C, and Class I shares
for the applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
AS OF FEBRUARY 28, 1998
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year Life of Fund*
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Cumulative Total Return +24.56% +58.41% +143.52%
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Average Annual Total Return -- +58.41% + 51.05%
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SEC Results -- +50.87% + 47.68%
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CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year Life of Fund*
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Cumulative Total Return +24.05% +57.39% +142.05%
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Average Annual Total Return -- +57.39% + 50.60%
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SEC Results -- +53.39% + 49.74%
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*For the period from the commencement of the Fund's investment operations,
January 2, 1996, through February 28, 1998.
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PERFORMANCE SUMMARY -- continued
CLASS C INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year Life of Fund*
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Cumulative Total Return +24.06% +57.59% +142.36%
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Average Annual Total Return -- +57.59% + 50.69%
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SEC Results -- +56.59% + 50.69%
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CLASS I INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year Life of Fund*
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Cumulative Total Return +24.74% +58.82% +144.28%
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Average Annual Total Return -- +58.82% + 51.24%
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*For the period from the commencement of the Fund's investment operations,
January 2, 1996, through February 28, 1998.
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 have been 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.
<PAGE>
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1998
LARGEST EQUITY SECTORS
Technology ......................................................... 34.3%
Retailing .......................................................... 16.7%
Financial Services ................................................. 15.3%
Miscellaneous (Conglomerates, special products/services) ........... 13.5%
Leisure ............................................................ 13.2%
Health Care ........................................................ 7.0%
For a more complete breakdown, refer to the Portfolio of Investments.
<TABLE>
TOP 10 EQUITY HOLDINGS
<S> <C>
MICROSOFT CORP. 10.1% COMPUTER ASSOCIATES INTERNATIONAL, INC. 3.6%
Computer software and systems company Computer software company
FRANKLIN RESOURCES, INC. 4.8% ORACLE CORP. 3.2%
Mutual fund and financial services company Database software developer and manufacturer
CVS CORP. 4.0% CADENCE DESIGN SYSTEMS, INC. 3.0%
Drug store chain Computer software and systems company
TYCO INTERNATIONAL LTD. 3.9% BMC SOFTWARE, INC. 3.0%
Fire protection, packaging, and electronic Computer software company
equipment manufacturer
ASSOCIATES FIRST CAPITAL CORP. 2.9%
SAFEWAY, INC. 3.8% Diversified financial services company
Supermarket chain
</TABLE>
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- February 28, 1998
Stocks - 89.8%
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ISSUER SHARES VALUE
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U.S. Stocks - 85.1%
Aerospace - 1.6%
Gulfstream Aerospace Corp.* 24,453 $ 990,347
United Technologies Corp. 29,332 2,619,714
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$ 3,610,061
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Apparel and Textiles - 0.4%
Liz Claiborne, Inc. 17,748 $ 887,400
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Banks and Credit Companies - 2.4%
First America Bank Corp. 7,781 $ 604,486
Fleet Financial Group, Inc. 7,040 554,840
National City Corp. 2,191 142,963
Norwest Corp. 45,254 1,852,585
State Street Corp. 14,871 919,214
Wells Fargo & Co. 4,273 1,375,906
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$ 5,449,994
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Broadcasting - 0.1%
Young Broadcasting, Inc., "A"* 5,747 $ 254,305
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Building - 0.1%
Sherwin Williams Co. 4,001 $ 133,783
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Business Machines - 1.7%
Affiliated Computer Services, Inc., "A"* 46,490 $ 1,496,397
Sun Microsystems, Inc.* 48,272 2,298,954
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$ 3,795,351
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Business Services - 3.5%
AccuStaff, Inc.* 17,701 $ 500,053
Cendant Corp.* 139,411 5,227,912
Ceridian Corp.* 6,700 311,969
Computer Sciences Corp.* 6,535 684,133
DST Systems, Inc.* 15,888 840,078
First Data Corp. 7,647 259,998
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$ 7,824,143
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Cellular Telephones - 0.3%
AirTouch Communications, Inc.* 17,270 $ 776,071
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Chemicals - 0.1%
Sigma-Aldrich Corp. 7,137 $ 281,912
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Computer Hardware - Systems - 0.1%
EMC Corp.* 4,111 $ 157,246
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Computer Software - Personal Computers - 9.1%
Microsoft Corp.* 242,908 $ 20,586,453
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Computer Software - Systems - 12.8%
BMC Software, Inc.* 78,412 $ 5,998,518
Cadence Design Systems, Inc.* 175,600 6,135,025
Computer Associates International, Inc. 155,585 7,331,943
Compuware Corp.* 62,413 2,629,148
Oracle Corp.* 264,797 6,520,626
Scopus Technology, Inc.* 18,132 256,114
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$ 28,871,374
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Consumer Goods and Services - 4.4%
Clorox Co. 10,676 $ 936,819
Revlon, Inc., "A"* 13,172 618,261
Service Corp. International 11,094 420,185
Tyco International Ltd. 157,223 7,979,067
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$ 9,954,332
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Electrical Equipment - 0.2%
Black & Decker Corp. 8,517 $ 429,044
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Electronics - 0.9%
Analog Devices, Inc.* 12,707 $ 409,800
Intel Corp. 18,829 1,688,726
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$ 2,098,526
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Energy - 0.1%
CalEnergy Co., Inc.* 4,815 $ 129,102
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Entertainment - 4.6%
American Radio Systems Corp., "A"* 1,291 $ 77,137
CBS Corp. 10,715 331,495
Clear Channel Communications, Inc.* 24,144 2,188,050
Cox Radio, Inc., "A"* 16,363 703,609
Disney (Walt) Co. 2,244 251,188
Harrah's Entertainment, Inc.* 119,462 2,516,169
Hearst-Argyle Television, Inc.* 10,649 374,046
Jacor Communications, Inc.* 23,075 1,335,466
Mirage Resorts, Inc.* 22,047 504,325
Time Warner, Inc. 8,744 590,220
Univision Communications, Inc., "A"* 39,635 1,520,993
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$ 10,392,698
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Financial Institutions - 10.7%
American Express Co. 34,112 $ 3,072,212
Associates First Capital Corp., "A" 73,036 5,842,880
Federal National Mortgage Assn 52,800 3,369,300
Franklin Resources, Inc. 191,084 9,745,284
Merrill Lynch & Co., Inc. 17,277 1,236,385
Morgan Stanley, Dean Witter, Discover & Co. 14,011 976,392
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$ 24,242,453
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Financial Services - 0.3%
CIT Group, Inc., "A"* 11,217 $ 370,161
Washington Mutual, Inc. 4,415 296,357
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$ 666,518
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Insurance - 0.3%
Lincoln National Corp. 6,657 $ 557,524
Torchmark Corp. 3,945 183,689
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$ 741,213
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Media - 0.4%
Chancellor Media Corp.* 18,414 $ 824,026
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Medical and Health Products - 2.8%
American Home Products Corp. 15,656 $ 1,467,750
Bristol-Myers Squibb Co. 35,749 3,581,603
Johnson & Johnson 5,548 418,874
McKesson Corp.## 10,935 569,987
Pfizer, Inc. 1,865 165,052
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$ 6,203,266
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Medical and Health Technology and Services - 2.3%
Health Management Associates, Inc., "A"* 5,733 $ 159,449
HEALTHSOUTH Corp.* 88,798 2,397,546
Medtronic, Inc. 1,305 69,328
PacifiCare Health Systems, Inc., "B"* 1,389 86,813
Province Healthcare Co.* 400 8,300
Total Renal Care Holdings, Inc.* 7,000 225,312
United Healthcare Corp. 36,780 2,232,086
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$ 5,178,834
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Oil Services - 0.1%
Schlumberger Ltd. 2,060 $ 155,273
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Oils - 0.3%
Exxon Corp. 10,251 $ 654,783
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Printing and Publishing - 1.2%
Gannett Co., Inc. 34,025 $ 2,196,739
Tribune Co. 9,211 594,685
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$ 2,791,424
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Restaurants and Lodging - 3.2%
Four Seasons Hotels, Inc. 7,579 $ 272,844
Hilton Hotels Corp. 52,094 1,553,052
Marriott International, Inc. 14,425 1,092,694
Promus Hotel Corp.* 88,588 4,274,371
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$ 7,192,961
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Stores - 10.1%
AutoZone, Inc.* 6,298 $ 190,515
CVS Corp. 108,824 8,059,777
Duane Reade, Inc.* 500 11,188
General Nutrition Cos., Inc.* 13,303 528,794
Home Depot, Inc. 44,359 2,830,659
Office Depot, Inc.* 141,801 3,908,390
Rite Aid Corp. 165,267 5,350,519
Wal-Mart Stores, Inc. 43,432 2,011,444
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$ 22,891,286
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Supermarkets - 4.4%
Meyer (Fred), Inc.* 50,351 $ 2,237,473
Safeway, Inc.* 223,606 7,798,259
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$ 10,035,732
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Telecommunications - 6.6%
Aspect Telecommunications Corp.* 20,263 $ 534,437
AT&T Corp. 5,346 325,438
Cisco Systems, Inc.* 69,595 4,584,538
Global TeleSystems Group, Inc.* 1,100 40,287
LCI International, Inc.* 10,186 336,138
Lucent Technologies, Inc. 29,525 3,199,772
MCI Communications Corp. 115,380 5,516,606
Sprint Corp. 5,086 335,676
Tellabs, Inc.* 1,483 89,536
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$ 14,962,428
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Total U.S. Stocks $192,171,992
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Foreign Stocks - 4.7%
France - 0.5%
Dassault Systemes S.A., ADR (Computer Software -
Systems) 1,540 $ 59,482
Dassault Systemes S.A. (Computer Software - Systems 2,608 105,426
Alcatel Alsthom Compagnie, ADR (Telecommunications) 14,818 388,046
Alcatel Alsthom Compagnie (Telecommunications) 4,487 583,963
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$ 1,136,917
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Germany - 1.5%
SAP AG, ADR (Computer Software - Systems) 263 $ 100,022
SAP AG, Preferred (Computer Software - Systems) 1,933 796,938
SAP AG, ADR (Computer Software - Systems)## 47 6,427
SAP AG, ADR (Computer Software - Systems) 12 1,641
SAP AG, ADR (Computer Software - Systems)## 650 88,888
Schering Plough Corp. (Pharmaceuticals) 31,472 2,393,839
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$ 3,387,755
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Japan - 1.5%
Canon, Inc. (Office Equipment) 27,000 $ 619,630
Sony Corp., ADR (Electronics) 21,467 1,941,422
Sony Corp. (Electronics) 11,400 1,032,002
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$ 3,593,054
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Switzerland - 0.2%
Novartis AG (Pharmaceuticals) 252 $ 460,795
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United Kingdom - 1.0%
British Petroleum PLC, ADR (Oils) 24,011 $ 1,985,409
Sema Group PLC (Computer Software - Systems) 4,008 128,920
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$ 2,114,329
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Total Foreign Stocks $ 10,692,850
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Total Stocks (Identified Cost, $169,994,063) $202,864,842
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Bonds - 2.2%
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PRINCIPAL AMOUNT
(000 OMITTED)
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U.S. Treasury Obligations - 2.2%
U.S. Treasury Bonds, 6.125s, 2027
(Identified Cost, $4,921,500) $4,800 $ 4,934,256
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Short-Term Obligations - 6.8%
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Federal Home Loan Bank, due 3/06/98 $2,000 $ 1,998,486
Federal Home Loan Mortgage Corp.,
due 3/05/98 - 3/18/98 6,400 6,388,209
Ford Motor Credit Corp., due 3/02/98 7,000 6,998,896
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Total Short-Term Obligations, at Amortized Cost $ 15,385,591
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Total Investments (Identified Cost, $190,301,154) $223,184,689
Other Assets, Less Liabilities - 1.2% 2,663,248
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Net Assets - 100.0% $225,847,937
- --------------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $190,301,154) ....... $223,184,689
Cash ........................................................ 51,892
Receivable for Fund shares sold ............................. 6,743,902
Receivable for investments sold ............................. 729,868
Dividends and interest receivable ........................... 148,512
Deferred organization expenses .............................. 1,450
Other assets ................................................ 734
------------
Total assets .............................................. $230,861,047
------------
Liabilities:
Payable for investments purchased ........................... $ 4,871,083
Payable for Fund shares reacquired .......................... 36,838
Payable to affiliates -
Management fee ............................................ 9,144
Shareholder servicing agent fee ........................... 1,178
Distribution and service fee .............................. 89,950
Administrative fee ........................................ 157
Accrued expenses and other liabilities ...................... 4,760
------------
Total liabilities ....................................... $ 5,013,110
------------
Net assets .................................................... $225,847,937
============
Net assets consist of:
Paid-in capital ............................................. $188,776,384
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies .............. 32,883,531
Accumulated undistributed net realized gain on investments
and foreign currency transactions ......................... 4,852,374
Accumulated net investment loss ............................. (664,352)
------------
Total ................................................... $225,847,937
============
Shares of beneficial interest outstanding ..................... 10,936,221
==========
Class A shares:
Net asset value per share
(net assets of $91,620,206 / 4,423,074 shares of beneficial
interest outstanding) .................................... $20.71
======
Offering price per share (100 / 94.25) ...................... $21.97
======
Class B shares:
Net asset value and offering price per share
(net assets of $89,432,712 / 4,346,306 shares of beneficial
interest outstanding) .................................... $20.58
======
Class C shares:
Net asset value and offering price per share
(net assets of $25,987,930 / 1,260,762 shares of
beneficial interest outstanding) ......................... $20.61
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $18,807,089 / 906,079 shares of
beneficial interest outstanding) ......................... $20.76
======
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 (Unaudited)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividends ................................................... $ 270,590
Interest .................................................... 159,514
Foreign taxes withheld ...................................... (3,598)
-----------
Total investment income ................................... $ 426,506
-----------
Expenses -
Management fee .............................................. $ 447,810
Trustees' compensation ...................................... 18,050
Shareholder servicing agent fee ............................. 73,166
Distribution and service fee (Class A) ...................... 58,630
Distribution and service fee (Class B) ...................... 221,326
Distribution and service fee (Class C) ...................... 64,551
Administrative fee .......................................... 7,915
Printing .................................................... 24,968
Custodian fee ............................................... 23,777
Postage ..................................................... 16,581
Auditing fees ............................................... 9,965
Legal fees .................................................. 3,088
Amortization of organization expenses ....................... 215
Miscellaneous ............................................... 81,756
-----------
Total expenses ............................................ $ 1,051,798
Fees paid indirectly ........................................ (1,219)
Reimbursement to investment adviser ......................... 40,279
-----------
Net expenses .............................................. $ 1,090,858
-----------
Net investment loss ..................................... $ (664,352)
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions ..................................... $ 4,931,089
Foreign currency transactions ............................... (1,070)
-----------
Net realized gain on investments and foreign currency
transactions ............................................ $ 4,930,019
-----------
Change in unrealized appreciation -
Investments ................................................. $26,177,781
Translation of assets and liabilities in foreign currencies . 226
-----------
Net unrealized gain on investments and foreign currency
translation ............................................. $26,178,007
-----------
Net realized and unrealized gain on investments and
foreign currency ...................................... $31,108,026
-----------
Increase in net assets from operations ................ $30,443,674
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
(UNAUDITED)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment loss ...................................... $ (664,352) $ (148,933)
Net realized gain on investments and foreign currency
transactions ........................................... 4,930,019 1,914,547
Net unrealized gain on investments and foreign currency
translation ............................................ 26,178,007 6,419,004
------------ -----------
Increase in net assets from operations ................. $ 30,443,674 $ 8,184,618
------------ -----------
Distributions declared to shareholders -
From net realized gain on investments and foreign currency
transactions (Class A) ................................. $ (507,750) $(1,718,843)
From net realized gain on investments and foreign currency
transactions (Class B) ................................. (480,547) --
From net realized gain on investments and foreign currency
transactions (Class C) ................................. (144,468) --
From net realized gain on investments and foreign currency
transactions (Class I) ................................. (153,532) --
------------ -----------
Total distributions declared to shareholders ........... $ (1,286,297) $(1,718,843)
------------ -----------
Net increase in net assets from Fund share transactions .... $139,746,986 $40,333,116
------------ -----------
Total increase in net assets ......................... $168,904,363 $46,798,891
Net assets:
At beginning of period ................................... 56,943,574 10,144,683
------------ -----------
At end of period (including accumulated net investment loss
of $664,352 and $0, respectively) ........................ $225,847,937 $56,943,574
============ ===========
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
1998 1997 1996*
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.79 $12.26 $10.00
------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.07) $(0.11) $ 0.02
Net realized and unrealized gain on investments and
foreign currency transactions 4.17 6.67 2.24
------ ------ ------
Total from investment operations $ 4.10 $ 6.56 $ 2.26
------ ------ ------
Less distributions declared to shareholders from net
realized gain on investments and foreign currency
transactions $(0.18) $(2.03) --
------ ------ ------
Net asset value - end of period $20.71 $16.79 $12.26
====== ====== ======
Total return(+) 24.56%++ 59.54% 22.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.50%+ 1.29% 0.44%+
Net investment income (loss) (0.78)%+ (0.82)% 0.23%+
Portfolio turnover 30% 82% 104%
Average commission rate $0.0503 $0.0527 $0.0555
Net assets at end of period (000 omitted) $91,620 $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. 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 $(0.06) $(0.15) $(0.05)
Ratios (to average net assets):
Expenses## 1.43%+ 1.59% 1.84%+
Net investment loss (0.71)%+ (1.12)% (0.66)%+
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28, AUGUST 31,
1998 1997**
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.75 $12.53
------ ------
Income from investment operations# -
Net investment loss(S) $(0.14) $(0.09)
Net realized and unrealized gain on investments and foreign
currency transactions 4.15 4.31
------ ------
Total from investment operations $ 4.01 $ 4.22
------ ------
Less distributions declared to shareholders from net realized gain
on investments and foreign currency transactions (0.18) --
------ ------
Net asset value - end of period $20.58 $16.75
====== ======
Total return 24.05%++ 33.76%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 2.25%+ 2.02%+
Net investment loss (1.53)%+ (1.46)%+
Portfolio turnover 30% 82%
Average commission rate $0.0503 $0.0527
Net assets at end of period (000 omitted) $89,433 $15,735
**For the period from the inception of Class B, 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. If the fee had been incurred by the Fund, the net
investment loss per share and the ratios would have been:
Net investment loss $(0.13) $(0.12)
Ratios (to average net assets):
Expenses## 2.18%+ 2.51%+
Net investment loss (1.46)%+ (1.95)%+
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28, AUGUST 31,
1998 1997***
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.77 $12.53
------ ------
Income from investment operations# -
Net investment loss(S) $(0.13) $(0.09)
Net realized and unrealized gain on investments and foreign
currency transactions 4.14 4.33
------ ------
Total from investment operations $ 4.01 $ 4.24
------ ------
Less distributions declared to shareholders from net realized gain
on investments and foreign currency transactions $(0.17) --
------ ------
Net asset value - end of period $20.61 $16.77
====== ======
Total return 24.06%++ 33.92%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 2.25%+ 2.04%+
Net investment loss (1.53)%+ (1.48)%+
Portfolio turnover 30% 82%
Average commission rate $0.0503 $0.0527
Net assets at end of period (000 omitted) $25,988 $6,048
***For the period from the inception of Class C, 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. 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 $(0.13) $(0.13)
Ratios (to average net assets):
Expenses## 2.18%+ 2.56%+
Net investment loss (1.46)%+ (1.99)%+
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28, AUGUST 31,
1998 1997****
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.80 $12.08
------ ------
Income from investment operations# -
Net investment loss(S) $(0.05) $(0.04)
Net realized and unrealized gain on investments and foreign
currency transactions 4.19 4.76
------ ------
Total from investment operations $ 4.14 $ 4.72
------ ------
Less distributions declared to shareholders from net realized gain
on investments and foreign currency transactions $(0.18) --
------ ------
Net asset value - end of period $20.76 $16.80
====== ======
Total return 24.74%++ 39.24%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.25%+ 0.94%+
Net investment loss (0.53)%+ (0.40)%+
Portfolio turnover 30% 82%
Average commission rate $0.0503 $0.0527
Net assets at end of period (000 omitted) $18,807 $13,462
****For the period from the inception of Class I, 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. 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 $(0.04) $(0.06)
Ratios (to average net assets):
Expenses## 1.18%+ 1.14%+
Net investment loss (0.46)%+ (0.60)%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(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. 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.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is 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 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 net 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.
The Fund offers multiple classes of shares. The classes of shares differ in
their respective distribution and service fees. All shareholders bear the
common expense 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.
(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 expenses, exclusive of management,
distribution, and service fees. The Fund in turn will pay MFS an expense
reimbursement fee of not greater than 0.50% 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 February
28, 1998, the aggregate unreimbursed expenses owed to MFS by the Fund amounted
to $13,795.
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%
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an unfunded
defined benefit plan for all of its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $3,600
for the six months ended February 28, 1998.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$180,128 for the six months ended February 28, 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 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. The Class A distribution fee is currently being waived on
a voluntary basis and may be imposed at the discretion of MFD. MFD retains the
service fee for accounts not attributable to a securities dealer which amounted
to $9,068 for the six months ended February 28, 1998. Fees incurred under the
distribution plan during the period ended February 28, 1998, were 0.25% of
average daily net assets attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average 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 $822 and $300 for Class B and Class C shares, respectively,
for the period ended February 28, 1998. Fees incurred under the distribution
plan during the six months ended February 28, 1998, were 1.00% of average net
assets attributable to Class B and Class C shares on an annualized basis.
Purchases over $1 million of Class A shares and certain purchases by retirement
plans are subject to a contingent deferred sales charge in the event of a
shareholder redemption within 12 months following such purchase. A contingent
deferred sales charge is imposed on shareholder redemptions of Class B shares in
the event of a shareholder redemption within six years of purchase. A contingent
deferred sales charge is imposed on shareholder redemptions of Class C shares in
the event of a shareholder redemption within twelve months of purchase. MFD
receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the six months ended February 28, 1998, were $0, $19,654,
and $5,350 or 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 0.1125%. Prior to January 1, 1998, the fee was calculated as a percentage
of the average daily net assets at an effective annual rate of up to 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, aggregated $160,34,39 and $36,008,686, 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 $190,301,154
------------
Gross unrealized appreciation $ 34,675,286
Gross unrealized depreciation (1,791,751)
------------
Net unrealized appreciation $ 32,883,535
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
Class A Shares
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28, 1998 YEAR ENDED AUGUST 31, 1997
---------------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,476,029 $64,624,341 1,208,172 $18,761,089
Shares issued to shareholders
in reinvestment of distributions 26,387 457,560 139,292 1,718,872
Shares transferred to Class I -- -- (706,677) (8,960,664)
Shares reacquired (371,628) (6,834,260) (176,243) (2,019,399)
--------- ----------- --------- -----------
Net increase 3,130,788 $58,247,641 464,544 $ 9,499,898
========= =========== ======= ===========
</TABLE>
<TABLE>
Class B Shares
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28, 1998 PERIOD ENDED AUGUST 31, 1997**
---------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,668,940 $67,656,784 962,839 $15,559,691
Shares issued to shareholders
in reinvestment of distributions 25,125 433,413 -- --
Shares reacquired (287,098) (5,183,779) (23,500) (387,233)
--------- ----------- --------- -----------
Net increase 3,406,967 $62,906,418 939,339 $15,172,458
========= =========== ======= ===========
</TABLE>
<TABLE>
Class C Shares
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28, 1998 PERIOD ENDED AUGUST 31, 1997**
------------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 959,525 $17,753,333 375,407 $ 6,018,343
Shares issued to shareholders
in reinvestment of distributions 7,902 136,541 -- --
Shares reacquired (67,245) (1,223,035) (14,827) (249,686)
--------- ----------- --------- -----------
Net increase 900,182 $16,666,839 360,580 $ 5,768,657
========= =========== ========= ===========
**For the period from the inception of Class B and Class C, April 11, 1997,
through August 31, 1997.
</TABLE>
<TABLE>
Class I Shares
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28, 1998 PERIOD ENDED AUGUST 31, 1997***
---------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 132,863 $ 2,442,013 216,474 $ 2,446,599
Shares transferred from Class A -- 706,677 8,960,664
Shares issued to shareholders
in reinvestment of distributions 8,787 152,637 -- --
Shares reacquired (36,739) (668,562) (121,983) (1,515,160)
--------- ----------- --------- -----------
Net increase 104,911 $ 1,926,088 801,168 $ 9,892,103
========= =========== ========= ===========
***For the period from the inception of Class I, January 2, 1997, through
August 31, 1997.
</TABLE>
(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 six months ended February 28, 1998, was $383.
--------------------------------------------
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>
MFS(R) STRATEGIC GROWTH FUND
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 State Street Bank and Trust Company
Cardiac Surgery, Brigham and Women's
Hospital; Professor of Surgery, INVESTOR INFORMATION
Harvard Medical School For MFS stock and bond market
outlooks, call toll free:
The Hon. Sir J. David Gibbons, KBE - 1-800-637-4458 anytime from a
Chief Executive Officer, Edmund touch-tone telephone.
Gibbons Ltd.
For information on MFS mutual funds,
Abby M. O'Neill - Private Investor call your financial adviser or, for an
information kit, call toll free:
Walter E. Robb, III - President and 1-800-637-2929 any business day from 9
Treasurer, Benchmark Advisors, Inc. a.m. to 5 p.m. Eastern time (or leave
(corporate financial consultants); a message anytime).
President, Benchmark Consulting Group,
Inc. (office services) INVESTOR SERVICE
MFS Service Center, Inc.
Arnold D. Scott* - Senior Executive P.O. Box 2281
Vice President, Director, and Boston, MA 02107-9906
Secretary, MFS Investment Management
For general information, call toll
Jeffrey L. Shames* - Chairman, Chief free: 1-800-225-2606 any business day
Executive Officer, and Director, MFS from 8 a.m. to 8 p.m. Eastern time.
Investment Management
For service to speech- or
J. Dale Sherratt - President, Insight hearing-impaired, call toll free:
Resources, Inc. (acquisition planning 1-800-637-6576 any business day from 9
specialists) a.m. to 5 p.m. Eastern time. (To use
this service, your phone must be
Ward Smith - Former Chairman (until equipped with a Telecommunications
1994), NACCO Industries (holding Device for the Deaf.) For share
company) prices, account balances, and
exchanges, call toll free:
INVESTMENT ADVISER 1-800-MFS-TALK (1-800-637-8255)
Massachusetts Financial Services Company anytime from a touch-tone telephone.
500 Boylston Street
Boston, MA 02116-3741 WORLD WIDE WEB
www.mfs.com
DISTRIBUTOR
MFS Fund Distributors, Inc. [Dalbar Logo] For the fourth year in a
500 Boylston Street row, MFS earned a #1 ranking in the
Boston, MA 02116-3741 DALBAR, Inc. Broker/Dealer Survey,
Main Office Operations Service Quality
PORTFOLIO MANAGER Category. The firm achieved a 3.42
Christian A. Felipe* overall score on a scale of 1 to 4 in
the 1997 survey. A total of 111 firms
TREASURER responded, offering input on the
W. Thomas London* quality of service they received from
29 mutual fund companies nationwide.
ASSISTANT TREASURERS The survey contained questions about
Mark E. Bradley* service quality in 11 categories,
Ellen Moynihan* including "knowledge of operations
James O. Yost* contact," "keeping you informed," and
"ease of doing business" with the
firm.
*Affiliated with the Investment Adviser
<PAGE>
----------------
MFS(R) Strategic Bulk Rate
Growth Fund U.S. Postage
Paid
[Logo] MFS
INVESTMENT MANAGEMENT ----------------
We invented the mutual fund(SM)
500 Boylston Street
Boston, MA 02116-3741
[Dalbar Logo]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MSG-3 4/98 27M 090/290/390/890
