<PAGE>
[Logo] MFS(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
MFS(R) RESEARCH GROWTH
AND INCOME FUND
ANNUAL REPORT O AUGUST 31, 1998
[Graphic Omitted]
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 31)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 23
Independent Auditors' Report .............................................. 29
Trustees and Officers ..................................................... 33
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HIGHLIGHTS
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o FOR THE 12 MONTHS ENDED AUGUST 31, 1998, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 6.33%, CLASS B SHARES 5.54%,
CLASS C SHARES 5.59%, AND CLASS I SHARES 6.62%. (PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. SEE PERFORMANCE SUMMARY FOR MORE
INFORMATION.)
o THE FUND HAS EXPERIENCED STRONG PERFORMANCE FROM STOCKS OF RETAIL DRUG
STORE CHAINS, COMMUNICATIONS COMPANIES THAT CAN EXPLOIT THE INTERNET BOOM,
AND PHARMACEUTICAL COMPANIES.
o UNTIL MARKET FUNDAMENTALS IMPROVE, THE FUND HAS REDUCED ITS WEIGHTING IN
THE ENERGY SECTOR, SPECIFICALLY IN OIL STOCKS.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
- ----------------------------
[Photo of Jeffrey L. Shames]
- ----------------------------
Jeffrey L. Shames
Dear Shareholders,
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 12 months ended August 31, 1998, Class A shares of the Fund provided a
total return of 6.33%, Class B shares 5.54%, Class C shares 5.59%, and Class I
shares 6.62%. These returns, which include the reinvestment of distributions but
exclude the effects of any sales charges, compare to an 8.05% return for the S&P
500 for the same period. The S&P 500 is a popular, unmanaged index of common
stock total return performance.
Q. WHAT WERE SOME OF THE MAJOR FACTORS THAT CONTRIBUTED TO THE FUND'S
PERFORMANCE OVER THE PAST 12 MONTHS?
A. The strongest segments of the portfolio were our holdings in health care,
utilities and communications, and retail, all of which included large
positions of stocks that performed strongly. Our investments in
pharmaceutical companies and retail drug store chains such as CVS and Rite
Aid benefited from the continued influence of the managed health care system,
which is driving an increase in prescription volume. In utilities and
communications, we saw good performances by stocks such as Sprint and Century
Telephone, both of which are leveraging growth in voice and data
communications traffic on the Internet. On the other hand, investments in
basic materials and commodity stocks hurt performance. The Fund's
conservative nature means that it will always have some exposure to these
types of industries, and these holdings were victimized somewhat by the
current deflationary environment, which has depressed commodity prices and
negatively affected share prices. We were hurt specifically by our holdings
in companies such as DuPont, Stone Container, and some of the paper
companies. The Fund's energy holdings did well on a relative basis but did
not keep pace with the S&P 500. A key factor here was deep lows in oil prices
stemming from weakened demand in Asia and an abnormally warm winter in the
United States that caused oversupply.
Q. WHAT IS THE ADVANTAGE OF ORIGINAL RESEARCH(SM) IN A VOLATILE MARKET?
A. At MFS, we view volatility as an opportunity to press our Original Research
advantage. Because we are so familiar with the companies in which we
invest, we can judge between stocks whose share price is changing solely
due to the ups and downs of the broader market as opposed to any changes in
that stock's underlying fundamentals.
Q. WILL THE CURRENT EQUITY MARKET VOLATILITY IMPACT THE WAY YOU MANAGE THE FUND?
IF SO, HOW?
A. No, our research and stock-selection process remains the same in all
markets. If the market continues to be volatile and share prices continue
to swing dramatically, we can move quickly in or out of positions based on
an informed outlook on their valuations. Additionally, we'll use market
volatility to add to our positions in stocks in which we are most
confident, such as Tyco International and Pfizer.
Q. THE FUND OFTEN INVESTS IN MATURE COMPANIES AND INDUSTRIES. HOW HAVE THESE
TYPES OF STOCKS BEEN AFFECTED BY THE MARKET'S VOLATILITY?
A. Often investors assume a mature industry is less susceptible to volatility
than a younger industry, but this is not necessarily the case. It's
important to remember that volatility is largely a function of earnings
outlooks and any number of factors can affect those outlooks. For example,
in the past year we saw substantial corrections in commodity, basic
materials, and consumer goods stocks, all of which are widely held to be
mature industries. These companies fell victim to depressed demand in Asia
that impacted prices in their markets and, ultimately, their earnings.
The key for us as stock-pickers is to sharpen our focus on companies and
industries that can still produce good earnings growth. In today's market,
we believe we've found those types of stocks in health care and
communications companies.
Q. WHAT ARE SOME OF THE FUND'S BEST IDEAS CURRENTLY?
A. Cisco is one of our best ideas. The company is the leading supplier of
routing and switching equipment to Internet service providers. Their
products are essential to the expansion and smooth operation of the
Internet. The company's earnings are growing at more than 30% per year and,
though the stock isn't particularly cheap, we think it's akin to a modern
blue chip in the technology sector.
Q. PLEASE DISCUSS SOME OF THE MORE SIGNIFICANT CHANGES TO THE FUND'S HOLDINGS
OVER THE PAST 12 MONTHS.
A. We cut back on our energy and basic materials weightings based on those
industries' poor fundamental outlook in the near term. We also sold our
positions in Coca-Cola and Compaq based on the high valuations those
companies were fetching in relation to their
growth prospects.
Q. WHAT SORT OF ADDITIONS OR CHANGES HAVE YOU MADE TO THE COMMITTEE OF ANALYSTS
WITH SPECIFIC REGARD TO ENHANCING YOUR ANALYTICAL REACH OR DEPTH OF
KNOWLEDGE?
A. We have increased our research staff significantly in the past year by
adding seven new analysts. By expanding the analyst staff, we can broaden
the scope of our overall coverage while limiting the number of industries
individual analysts are expected to cover. The analysts can now narrow
their focus, and we feel MFS is assured of greater depth of coverage in
each industry as a result.
/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>
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FUND FACTS
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OBJECTIVE: SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL,
CURRENT INCOME, AND GROWTH OF INCOME.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 2, 1996
CLASS INCEPTION: CLASS A JANUARY 2, 1996
CLASS B JANUARY 2, 1997
CLASS C JANUARY 2, 1997
CLASS I JANUARY 2, 1997
SIZE: $142.5 MILLION NET ASSETS AS OF AUGUST 31, 1998
PRIOR TO JANUARY 2, 1997, 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, 1996, through August 31, 1998)
MFS Research S&P Consumer
Growth and 500 Price
Income Fund Composite Index
- Class A Index - U.S.
- --------------------------------------------------
1/96 $ 9,425 $10,000 $10,000
8/96 10,490 10,745 10,253
8/97 14,290 15,112 10,483
8/98 15,194 16,335 10,652
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS THROUGH AUGUST 31, 1998
CLASS A
1 Year 10 Years/Life*
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Average Annual Total Return +6.33% +19.64%
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SEC Results +0.22% +17.01%
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CLASS B
1 Year 10 Years/Life*
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Average Annual Total Return +5.54% +18.91%
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SEC Results +1.54% +17.83%
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CLASS C
1 Year 10 Years/Life*
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Average Annual Total Return +5.59% +18.87%
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SEC Results +4.59% +18.87%
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CLASS I
1 Year 10 Years/Life*
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Average Annual Total Return +6.62% +19.61%
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COMPARATIVE INDICES
1 Year 10 Years/Life*
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Standard & Poor's 500 Composite Index+ +8.05% +20.24%
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Consumer Price Index+# +1.61% + 2.40%
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*For the period from the commencement of the Fund's investment operations,
January 2, 1996, through August 31, 1998.
+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 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 AUGUST 31, 1998
FIVE LARGEST STOCK SECTORS
FINANCIAL SERVICES 25.0%
CONSUMER STAPLES 14.6%
UTILITIES AND COMMUNICATIONS 11.9%
HEALTH CARE 10.7%
TECHNOLOGY 9.2%
<TABLE>
TOP 10 STOCK HOLDINGS
<S> <C>
MICROSOFT CORP. 3.4% BRISTOL-MYERS SQUIBB CO. 2.4%
Computer software and systems company Pharmaceutical products company
EXXON CORP. 2.7% CENTURY TELEPHONE ENTERPRISES, INC. 2.4%
International oil and gas company Diversified telecommunications services
provider
TYCO INTERNATIONAL LTD. 2.5%
Security systems, packaging, and electronic RITE AID CORP. 1.9%
equipment conglomerate Drug store chain
SPRINT CORP. 2.5% AMERICAN HOME PRODUCTS CORP. 1.8%
Long-distance telephone company Pharmaceutical and home products company
BRITISH PETROLEUM PLC, ADR 2.4% PHILIP MORRIS COS., INC. 1.8%
Oil exploration and production company Tobacco, food, and beverage conglomerate
</TABLE>
Portfolio information is as of August 31, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- August 31, 1998
Stocks - 97.1%
<CAPTION>
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ISSUER SHARES VALUE
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<S> <C> <C>
U.S. Stocks - 85.7%
Aerospace - 2.4%
Lockheed-Martin Corp. 13,380 $ 1,169,914
United Technologies Corp. 31,200 2,263,950
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$ 3,433,864
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Automotive - 0.4%
Ford Motor Co. 14,600 $ 642,400
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Banks and Credit Companies - 6.4%
BankBoston Corp. 29,440 $ 1,050,640
Chase Manhattan Corp. 30,900 1,637,700
Comerica, Inc. 24,900 1,301,025
Compass Bancshares, Inc. 43,190 1,425,270
Fleet Financial Group, Inc. 20,500 1,344,031
National City Corp. 18,300 1,075,125
PNC Bank Corp. 17,200 739,600
Washington Mutual, Inc. 16,900 540,800
------------
$ 9,114,191
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Business Machines - 1.9%
Sun Microsystems, Inc.* 24,310 $ 963,284
Xerox Corp. 19,900 1,747,469
------------
$ 2,710,753
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Chemicals - 1.2%
Cambrex Corp. 28,800 $ 658,800
E.I. du Pont de Nemours & Co. 17,800 1,026,838
------------
$ 1,685,638
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Computer Software - Personal Computers - 3.3%
Microsoft Corp.* 48,600 $ 4,662,562
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Computer Software - Systems - 0.6%
Computer Associates International, Inc. 10,000 $ 270,000
Oracle Corp.* 32,800 653,950
------------
$ 923,950
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Consumer Goods and Services - 9.1%
Clorox Co. 15,700 $ 1,514,069
Colgate-Palmolive Co. 24,500 1,767,062
Dial Corp. 37,200 725,400
Gillette Co. 32,900 1,353,012
Kimberly-Clark Corp. 10,620 404,888
Philip Morris Cos., Inc. 59,200 2,460,500
Procter & Gamble Co. 26,600 2,034,900
Revlon, Inc., "A"* 28,300 1,020,569
Service Corp. International 47,700 1,615,837
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$ 12,896,237
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Electrical Equipment - 2.6%
Emerson Electric Co. 28,500 $ 1,624,500
General Electric Co. 26,400 2,112,000
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$ 3,736,500
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Entertainment - 0.9%
Viacom, Inc., "B"* 24,800 $ 1,230,700
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Financial Institutions - 4.4%
Associates First Capital Corp., "A" 34,800 $ 2,057,550
CIT Group, Inc., "A" 27,300 701,269
Federal National Mortgage Assn 39,700 2,255,456
First Union Corp. 25,970 1,259,545
Pimco Advisors Holdings PLC 1,600 44,700
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$ 6,318,520
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Food and Beverage Products - 5.0%
Archer-Daniels-Midland Co. 85,445 $ 1,281,675
Dean Foods Co. 32,100 1,412,400
Hormel Foods Corp. 53,900 1,485,619
McCormick & Co., Inc. 47,100 1,368,844
Nabisco Holdings Corp., "A" 48,200 1,593,612
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$ 7,142,150
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Insurance - 7.0%
Allstate Corp. 24,300 $ 911,250
CIGNA Corp. 19,000 1,105,563
Conseco, Inc. 25,800 712,725
Hartford Financial Services Group, Inc. 22,120 989,870
Hartford Life, Inc., "A" 10,600 543,250
Lincoln National Corp. 19,300 1,659,800
Nationwide Financial Services, Inc., "A" 31,800 1,421,062
ReliaStar Financial Corp. 31,754 1,246,344
Transamerica Corp. 6,800 697,425
Travelers Group, Inc. 14,100 625,688
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$ 9,912,977
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Machinery - 0.9%
Federal Signal Corp. 60,600 $ 1,234,725
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Medical and Health Products - 5.8%
American Home Products Corp. 50,700 $ 2,541,338
Boston Scientific Corp.* 25,100 1,738,175
Bristol-Myers Squibb Co. 33,900 3,317,962
Pfizer, Inc. 7,600 706,800
------------
$ 8,304,275
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Medical and Health Technology and Services - 4.6%
Cardinal Health, Inc. 20,000 $ 1,750,000
Guidant Corp. 11,100 685,425
HealthSouth Corp.* 48,617 920,684
Medtronic, Inc. 28,000 1,438,500
United Healthcare Corp. 47,900 1,730,388
------------
$ 6,524,997
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Metals and Minerals - 1.0%
Aluminum Co. of America 18,630 $ 1,115,471
Minerals Technologies, Inc. 8,200 297,763
------------
$ 1,413,234
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Oils - 4.5%
Chevron Corp. 14,500 $ 1,073,906
Exxon Corp. 57,500 3,762,656
Mobil Corp. 21,900 1,513,838
USX-Marathon Group 2,195 57,070
------------
$ 6,407,470
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Pollution Control - 0.8%
Browning Ferris Industries, Inc. 33,700 $ 1,095,250
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Real Estate Investment Trusts - 2.7%
Beacon Capital Partners, Inc.*## 37,300 $ 746,000
Highwoods Properties, Inc. 41,300 1,050,569
Kilroy Realty Corp. 53,100 1,091,869
Patriot American Hospitality, Inc. 66,500 897,750
------------
$ 3,786,188
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Special Products and Services - 0.3%
Newport News Shipbuilding, Inc. 19,900 $ 467,650
- ------------------------------------------------------------------------------------------------------
Stores - 6.4%
CVS Corp. 51,200 $ 1,862,400
Lowes Co., Inc. 52,260 1,832,366
Penney (J.C.) Co. 36,600 1,813,987
Rite Aid Corp. 71,900 2,601,881
Sears, Roebuck & Co. 21,800 990,538
------------
$ 9,101,172
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Supermarkets - 0.5%
Meyer (Fred), Inc.* 19,200 $ 754,800
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Telecommunications - 7.3%
Alltel Corp. 34,800 $ 1,570,350
Century Telephone Enterprises, Inc. 72,350 3,282,881
Cisco Systems, Inc.* 26,400 2,161,500
Sprint Corp. 51,100 3,426,894
------------
$ 10,441,625
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Utilities - Electric - 4.1%
CMS Energy Corp. 27,610 $ 1,168,248
DQE, Inc. 29,500 1,052,781
New Century Energies, Inc. 19,500 899,438
Sierra Pacific Resources 39,700 1,451,531
Unicom Corp. 35,600 1,268,250
------------
$ 5,840,248
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Utilities - Gas - 1.6%
Columbia Energy Group, Inc. 23,950 $ 1,191,512
KN Energy, Inc. 28,500 1,115,063
------------
$ 2,306,575
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Total U.S. Stocks $122,088,651
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Foreign Stocks - 11.4%
Bermuda - 3.8%
Ace Ltd. (Insurance) 32,600 $ 945,400
EXEL Ltd. (Insurance) 15,000 1,002,188
Tyco International Ltd. (Consumer Goods and Services) 62,222 3,453,321
------------
$ 5,400,909
- ------------------------------------------------------------------------------------------------------
France - 1.1%
Alcatel Alsthom Compagnie, ADR (Telecommunications) 51,600 $ 1,557,675
- ------------------------------------------------------------------------------------------------------
Germany - 0.8%
Henkel KGaA (Chemicals) 13,515 $ 1,083,351
- ------------------------------------------------------------------------------------------------------
Italy - 0.5%
Istituto Mobiliare Italiano S.p.A. (Banks and Credit Cos.) 51,300 $ 789,253
- ------------------------------------------------------------------------------------------------------
Japan - 0.5%
Sony Corp. (Electronics) 9,500 $ 693,171
- ------------------------------------------------------------------------------------------------------
Netherlands - 0.6%
ING Groep N.V. (Financial Services) 14,522 $ 856,772
- ------------------------------------------------------------------------------------------------------
Sweden - 1.2%
Skandia Forsakrings AB (Insurance) 124,800 $ 1,760,762
- ------------------------------------------------------------------------------------------------------
Switzerland - 0.5%
Nestle SA (Food and Beverage Products) 350 $ 649,395
- ------------------------------------------------------------------------------------------------------
United Kingdom - 2.4%
British Petroleum PLC, ADR (Oils) 46,274 $ 3,383,786
Lloyds TSB Group PLC (Banks and Credit Cos.) 597 7,133
------------
$ 3,390,919
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Total Foreign Stocks $ 16,182,207
- ------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $140,045,882) $138,270,858
- ------------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 0.1%
- ------------------------------------------------------------------------------------------------------
Insurance - 0.1%
Lincoln National Corp., 7.75% (Identified Cost, $167,795) 6,700 $ 167,500
- ------------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.1%
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ------------------------------------------------------------------------------------------------------
Federal Farm Credit Bank, due 9/01/98, at Amortized Cost $3,000 $ 3,000,000
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $143,213,677) $141,438,358
Other Assets, Less Liabilities - 0.7% 1,041,762
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $142,480,120
- ------------------------------------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
AUGUST 31, 1998
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $143,213,677) $141,438,358
Cash 28,961
Foreign currency, at value (identified cost, $696) 705
Receivable for Fund shares sold 860,851
Receivable for investments sold 5,498,379
Dividends and interest receivable 198,800
Deferred organization expenses 1,016
Other assets 720
------------
Total assets $148,027,790
------------
Liabilities:
Payable for investments purchased $ 4,273,503
Payable for Fund shares reaquired 1,099,750
Payable to affiliates -
Management fee 8,073
Shareholder servicing agent fee 1,397
Distribution and service fee 95,394
Administrative fee 186
Accrued expenses and other liabilities 69,367
------------
Total liabilities $ 5,547,670
------------
Net assets $142,480,120
============
Net assets consist of:
Paid-in capital $137,759,306
Unrealized depreciation on investments and translation of
assets and liabilities
in foreign currencies (1,775,355)
Accumulated undistributed net realized gain on
investments and foreign
currency transactions 6,424,356
Accumulated undistributed net investment income 71,813
------------
Total $142,480,120
============
Shares of beneficial interest outstanding 9,892,286
=========
Class A shares:
Net asset value per share
(net assets of $52,238,151 / 3,621,655 shares of
beneficial interest outstanding) $14.42
======
Offering price per share (100 / 94.25) $15.30
======
Class B shares:
Net asset value and offering price per share
(net assets of $76,032,231 / 5,281,760 shares of
beneficial interest outstanding) $14.40
======
Class C shares:
Net asset value and offering price per share
(net assets of $13,199,110 / 919,049 shares of
beneficial interest outstanding) $14.36
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $1,010,628 / 69,822 shares of beneficial
interest outstanding) $14.47
======
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 $ 2,088,431
Interest 264,790
Foreign taxes withheld (18,315)
-----------
Total investment income $ 2,334,906
-----------
Expenses -
Management fee $ 825,565
Trustees' compensation 33,155
Shareholder servicing agent fee 149,487
Distribution and service fee (Class A) 168,385
Distribution and service fee (Class B) 664,710
Distribution and service fee (Class C) 114,871
Administrative fee 18,225
Custodian fee 49,124
Interest expense 692
Printing 47,154
Postage 26,547
Auditing fees 19,398
Legal fees 2,689
Amortization of organization expenses 434
Miscellaneous 139,594
-----------
Total expenses $ 2,260,030
Reduction of expenses by distributor (48,027)
Fees paid indirectly (6,592)
-----------
Net expenses $ 2,205,411
-----------
Net investment income $ 129,495
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 8,037,849
Foreign currency transactions (7,381)
-----------
Net realized gain on investments and foreign
currency transactions $ 8,030,468
-----------
Change in unrealized appreciation (depreciation) --
Investments $(7,349,130)
Translation of assets and liabilities in foreign
currencies (7)
-----------
Net unrealized loss on investments and foreign
currency translation $(7,349,137)
-----------
Net realized and unrealized gain on investments
and foreign currency $ 681,331
-----------
Increase in net assets from operations $ 810,826
===========
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statements of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 129,495 $ 39,084
Net realized gain on investments and foreign currency
transactions 8,030,468 2,187,750
Net unrealized gain (loss) on investments and foreign
currency translation (7,349,137) 5,567,124
------------ -----------
Increase in net assets from operations $ 810,826 $ 7,793,958
------------ -----------
Distributions declared to shareholders -
From net investment income (Class A) $ (61,099) $ (56,344)
From net investment income (Class B) (3,698) (12,053)
From net investment income (Class C) (249) (2,170)
From net investment income (Class I) (1,850) (1,976)
From net realized gain on investments (Class A) (1,497,660) (36,020)
From net realized gain on investments (Class B) (1,790,478) --
From net realized gain on investments (Class C) (331,785) --
From net realized gain on investment (Class I) (32,222) --
------------ -----------
Total distributions declared to shareholders $ (3,719,041) $ (108,563)
------------ -----------
Net increase in net assets from Fund share transactions $ 60,493,951 $76,716,676
------------ -----------
Total increase in net assets $ 57,585,736 $84,402,071
Net assets:
At beginning of period 84,894,384 492,313
------------ -----------
At end of period (including accumulated undistributed net
investment income of $71,813 and accumulated distributions
in excess of net investment income of $33,228, respectively) $142,480,120 $84,894,384
============ ===========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
-------------------------------- AUGUST 31,
1998 1997 1996*
- -------------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $14.12 $11.13 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.09 $ 0.07 $ 0.05
Net realized and unrealized gain on investments and
foreign currency transactions 0.78 3.02 1.08
------ ------ ------
Total from investment operations $ 0.87 $ 3.09 $ 1.13
------ ------ ------
Less distributions declared to shareholders -
From net investments income $(0.03) $(0.06) $ --
From net realized gain on investments (0.54) (0.04) --
------ ------ ------
Total distributions declared to shareholders $(0.57) $(0.10) $ --
------ ------ ------
Net asset value - end of period $14.42 $14.12 $11.13
====== ====== ======
Total return(+) 6.33% 36.22% 11.30%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.29%## 1.50% 1.50%+
Net investment income 0.56% 0.56% 0.65%+
Portfolio turnover 101% 106% 58%
Net assets at end of period (000 omitted) $52,238 $33,567 $492
* 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) The distributor voluntarily waived a portion of its distribution fee for the periods indicated. For the year ended
August 31, 1997, and for the period ended August 31, 1996, 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 0.60% of average daily net assets. To the extent actual expenses were over/under this
limitation, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $ 0.07 $ 0.07 $(0.13)
Ratios (to average net assets):
Expenses## 1.39% 1.55% 4.58%+
Net investment income (loss) 0.46% 0.51% (1.86)%+
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
1998 1997**
- -----------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $14.11 $12.01
------ ------
Income from investment operations# -
Net investment loss(S) $(0.03) $(0.02)
Net realized and unrealized gain on investments and foreign
currency transactions 0.80 2.13
------ ------
Total from investment operations $ 0.77 $ 2.11
------ ------
Less distributions declared to shareholders -
From net investments income $(0.00)+++ $(0.01)
From net realized gain on investments (0.48) --
In excess of net investment income -- (0.00)+++
------ ------
Total distributions declared to shareholders $(0.48) $(0.01)
------ ------
Net asset value - end of period $14.40 $14.11
====== ======
Total return 5.54% 17.56%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 2.03%## 2.25%+
Net investment loss (0.19)% (0.22)%+
Portfolio turnover 101% 106%
Net assets at end of period (000 omitted) $76,032 $43,069
** For the period from the inception of Class B, January 2, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
(S) For the period ended August 31, 1997, 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 0.60% 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 -- $(0.02)
Ratios (to average net assets):
Expenses## -- 2.30%+
Net investment loss -- (0.27)%+
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
1998 1997**
- ----------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $14.08 $12.00
------ ------
Income from investment operations# -
Net investment loss(S) $(0.03) $(0.02)
Net realized and unrealized gain on investments and foreign
currency transactions 0.80 2.11
------ ------
Total from investment operations $ 0.77 $ 2.09
------ ------
Less distributions declared to shareholders -
From net investment income $(0.00)+++ $(0.01)
From net realized gain on investments (0.49) --
In excess of net investment income -- (0.00)+++
------ ------
Total distributions declared to shareholders $(0.49) $(0.01)
------ ------
Net asset value - end of period $14.36 $14.08
====== ======
Total return 5.59% 17.41%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 2.03%## 2.25%+
Net investment loss (0.19)% (0.21)%+
Portfolio turnover 101% 106%
Net assets at end of period (000 omitted) $13,199 $7,433
** For the period from the inception of Class C, January 2, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
(S) For the period ended August 31, 1997, 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 0.60% 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 -- $(0.02)
Ratios (to average net assets):
Expenses## -- 2.30%+
Net investment loss -- (0.26)%+
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
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 $14.16 $12.01
------ ------
Income from investment operations# -
Net investment income(S) $ 0.13 $ 0.08
Net realized and unrealized gain on investments and foreign
currency transactions 0.78 2.11
------ ------
Total from investment operations $ 0.91 $ 2.19
------ ------
Less distributions declared to shareholders -
From net investment income $(0.03) $(0.02)
From net realized gain on investments (0.57) --
In excess of net investment income -- (0.02)
------ ------
Total distributions declared to shareholders $(0.60) $(0.04)
------ ------
Net asset value - end of period $14.47 $14.16
====== ======
Total return 6.62% 19.01%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.05%## 1.18%+
Net investment income 0.80% 0.87%+
Portfolio turnover 101% 106%
Net assets at end of period (000 omitted) $1,011 $825
** 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) For the period ended August 31, 1997, subject to reimbursement by the Fund, the investment adviser
voluntarily agreed to maintain the other expenses of the Fund, exclusive of management fees, at not
more than 0.60% of average daily net assets. To the extent actual expenses were over/under this
limitation, the net investment income per share and the ratios would have been:
Net investment income -- $ 0.08
Ratios (to average net assets):
Expenses## -- 1.22%+
Net investment income -- 0.83%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Research Growth and Income 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. 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.
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 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, $42,442 and $94,826 were reclassified to
accumulated undistributed net investment income and paid-in-capital,
respectively, from 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 the following annual
rates:
First $500 million of average net assets 0.65%
Average net assets in excess of $500 million 0.55%
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 $1,500
for the year ended August 31, 1998.
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
$119,900 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. 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 $2,269 for the year ended August 31,
1998. Fees incurred under the distribution plan during the year ended August
31, 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 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 $138 and $16 for Class
B and Class C shares, respectively, for the year ended August 31, 1998. Fees
incurred under the distribution plan during the year ended August 31, 1998,
were 1.00% of average daily net assets attributable to both Class B and Class
C shares on an annualized basis.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended August 31,
1998, were $50, $82,488, and $5,881 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, and
short-term obligations, aggregated $177,570,104 and $122,263,300,
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 $143,280,233
------------
Gross unrealized depreciation $(11,903,741)
Gross unrealized appreciation 10,061,866
------------
Net unrealized depreciation $ (1,841,875)
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
Class A Shares
<CAPTION>
YEAR ENDED AUGUST 31, 1998 YEAR ENDED AUGUST 31, 1997
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,962,035 $ 47,997,825 2,557,527 $ 32,802,879
Shares issued to shareholders in
reinvestment of distributions 103,015 1,453,922 6,926 87,900
Shares reacquired (1,821,122) (30,115,406) (230,966) (2,975,784)
---------- ------------ --------- ------------
Net increase 1,243,928 $ 19,336,341 2,333,487 $ 29,914,995
========== ============ ========= ============
</TABLE>
<TABLE>
Class B Shares
<CAPTION>
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997*
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,731,045 $ 42,879,218 3,163,454 $ 40,817,323
Shares issued to shareholders in
reinvestment of distributions 114,371 1,617,391 854 10,426
Shares reacquired (615,639) (9,634,175) (112,325) (1,518,396)
---------- ------------ --------- ------------
Net increase 2,229,777 $ 34,862,434 3,051,983 $ 39,309,353
========== ============ ========= ============
</TABLE>
<TABLE>
Class C Shares
<CAPTION>
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997*
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 519,106 $ 8,129,558 557,072 $ 7,186,023
Shares issued to shareholders in
reinvestment of distributions 16,782 236,637 97 1,196
Shares reacquired (144,753) (2,284,805) (29,255) (395,528)
---------- ------------ --------- ------------
Net increase 391,135 $ 6,081,390 527,914 $ 6,791,691
========== ============ ========= ============
</TABLE>
<TABLE>
Class I Shares
<CAPTION>
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997*
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 29,060 $ 499,438 58,353 $ 701,858
Shares issued to shareholders in
reinvestment of distributions 2,390 33,830 148 1,976
Shares reacquired (19,876) (319,482) (253) (3,197)
---------- ------------ --------- ------------
Net increase 11,574 $ 213,786 58,248 $ 700,637
========== ============ ========= ============
</TABLE>
*For the period from the inception of Class B, Class C, and Class I, January
2, 1997, through August 31, 1997.
(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 $1,025.
The Fund and other affiliated funds also participate in a $20 million
uncommitted, unsecured line of credit provided by State Street Bank and Trust
Company under a line of credit agreement. Borrowings may be made to temporarily
finance the purchase of securities, the redemption of shares, or emergency
expenses. During the year ended August 31, 1998, the maximum amount outstanding
was $930,246, and $0 was outstanding at August 31, 1998. Interest expense
incurred on the borrowings amounted to $692 for the year ended August 31, 1998,
at a weighted average interest rate on borrowings of 5.98%.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust I and Shareholders of MFS Research Growth
and Income Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Research Growth and Income 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 each of the two
years in the period then ended, and the financial highlights for each of the two
years in the period then ended, and for the period from January 2, 1996
(commencement of operations) to August 31, 1996. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. 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 Growth and Income Fund at August 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the two years in the period then ended, and for the period from January 2, 1996
(commencement of operations) to August 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
October 7, 1998
<PAGE>
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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.
THE FUND HAS DESIGNATED $38,981 AS A CAPITAL GAIN DIVIDEND.
FOR THE YEAR ENDED AUGUST 31, 1998, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 19.1%.
- --------------------------------------------------------------------------------
--------------------------------------------
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 GROWTH AND INCOME 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.; Chairman, Investor Information For MFS stock and bond
Colonial Insurance Company, Ltd. market outlooks, call toll free: 1-800-637-4458
anytime from a touch-tone telephone.
Abby M. O'Neill - Private Investor
For information on MFS mutual funds, call your
Walter E. Robb, III - President and Treasurer, financial adviser or, for an information kit,
Benchmark Advisors, Inc. (corporate financial call toll free: 1-800-637-2929 any business day
consultants); President, Benchmark Consulting from 9 a.m. to 5 p.m. Eastern time (or leave a
Group, Inc. (office services) message anytime).
Arnold D. Scott* - Senior Executive INVESTOR SERVICE
Vice President, Director, and Secretary, MFS Service Center, Inc.
MFS Investment Management P.O. Box 2281
Boston, MA 02107-9906
Jeffrey L. Shames* - Chairman, Chief
Executive Officer, and Director, For general information, call toll free:
MFS Investment Management 1-800-225-2606 any business day from 8 a.m. to 8
p.m. Eastern time.
J. Dale Sherratt - President, Insight Resources,
Inc. (acquisition planning specialists) For service to speech- or hearing-impaired, call
toll free: 1-800-637-6576 any business day from 9
Ward Smith - Former Chairman (until 1994), NACCO a.m. to 5 p.m. Eastern time. (To use this
Industries (holding company) service, your phone must be equipped with a
Telecommunications Device for the Deaf.)
INVESTMENT ADVISER
Massachusetts Financial Services Company For share prices, account balances, and
500 Boylston Street exchanges, call toll free: 1-800-MFS-TALK
Boston, MA 02116-3741 (1-800-637-8255) anytime from a touch-tone
telephone.
DISTRIBUTOR
MFS Fund Distributors, Inc. WORLD WIDE WEB
500 Boylston Street www.mfs.com
Boston, MA 02116-3741
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) RESEARCH GROWTH AND INCOME FUND ----------------
Bulk Rate
[Logo] MFS(R) U.S. Postage
INVESTMENT MANAGEMENT Paid
We invented the mutual fund(R) MFS
----------------
500 Boylston Street
Boston, MA 02116-3741
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MRG-2 10/98 37M 91/291/391/891
