<PAGE>
[Logo] MFS(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[graphic omitted]
MFS(R) STRATEGIC
GROWTH FUND
ANNUAL REPORT o AUGUST 31, 1998
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 32)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 17
Notes to Financial Statements ............................................. 24
Independent Auditors' Report .............................................. 30
Trustees and Officers ..................................................... 33
HIGHLIGHTS
o FOR THE 12 MONTHS ENDED AUGUST 31, 1998, CLASS A SHARES OF THE FUND PROVIDED
A TOTAL RETURN AT NET ASSET VALUE OF 13.07%, CLASS B SHARES 12.12%, CLASS C
SHARES 12.20%, AND CLASS I SHARES 13.32%. (PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS. SEE PERFORMANCE SUMMARY FOR MORE INFORMATION.)
o THE FUND'S RETAIL HOLDINGS HELPED PERFORMANCE AS THE U.S. CONSUMER APPEARS
TO BE BENEFITING FROM THE INTERNATIONAL TURMOIL, WITH LOW OIL PRICES, NEARLY
NONEXISTENT INFLATION, AND LOW UNEMPLOYMENT.
o AMONG TECHNOLOGY COMPANIES, MICROSOFT, ORACLE, AND CISCO SYSTEMS CONTINUE TO
DOMINATE THEIR BUSINESSES AND PROVIDE FAVORABLE RETURNS TO THE FUND. ALSO,
WE THINK TECHNOLOGY STOCKS, WHICH HAVE REACHED THEIR LOWEST LEVELS IN OVER A
YEAR, NOW PRESENT SOME REAL BUYING OPPORTUNITIES.
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NOT FDIC INSURED MAY LOSR 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 Christian A. Felipe]
Christian A. Felipe
For the 12 months ended August 31, 1998, Class A shares of the Fund provided a
total return of 13.07%, Class B shares 12.12%, Class C shares 12.20%, and Class
I shares 13.32%. These returns, which include the reinvestment of distributions
but exclude the effects of any sales charges, compare to an 8.05% return for the
Standard & Poor's 500 Composite Index (the S&P 500) for the same period. The S&P
500 is a popular, unmanaged index of common stock total return performance.
Q. HOW HAVE YOU MANAGED TO STAY AHEAD OF THE S&P 500 DURING THIS YEAR'S
MARKET VOLATILITY?
A. Our retail holdings really paid off. The U.S. consumer appears to be
benefiting from all the international turmoil in that inflation is almost
nonexistent, unemployment is low, and states are flush with cash and are
talking about tax cuts. All of this creates a very healthy retail
environment. Companies such as Wal-Mart, Home Depot, Safeway, and CVS have no
foreign exposure, and they buy a lot of their products from overseas, so
they're buying cheap goods. While we had a few underperformers in other
sectors, like Computer Associates and United Healthcare, select technology
stocks such as Microsoft and Oracle helped the Fund.
Q. ARE THERE OTHER SECTORS THAT YOU LIKE NOW?
A. I like media, particularly radio. This business continues to consolidate.
Companies used to be able to own two radio stations in a market; now, they
can own eight. So, for example, in a market that had two or three country
music stations all competing against each other, one owner can now have an
oldies country station and a modern country station. Instead of two companies
battling each other for the same audience, one company can segment the market
and target different audiences. This is already a fundamentally sound
business, and the cash flows are strong and getting better. Companies we
like here include CBS, Cox Radio, Jacor, Chancellor Radio, Clear Channel, and
Citadel.
Q. HOW DO YOU VIEW THE CURRENT INVESTMENT ENVIRONMENT?
A. As a general rule, we don't make a habit of predicting the markets. We try to
buy individual securities that we think can provide superior returns. I
personally feel very good about the market, and I like the position of the
portfolio. I think the U.S. economy is in fine shape. I believe that, in
general, the United States benefits from the international turmoil in terms
of lower inflation and lower interest rates. So I'm comfortable with the
portfolio and the market, and I'm putting money to work.
Q. HAVE YOU MADE ANY CHANGES IN THE PORTFOLIO EITHER BEFORE OR SINCE THE
VOLATILITY BEGAN THIS SUMMER?
A. Very few. The Fund's biggest position continues to be Microsoft. Also, we
think technology stocks, which have reached their lowest levels in over a
year, now present some real buying opportunities. We are seeing signs that
the fourth quarter of this year and the first part of next year will be a
strong period for new products for this industry, and we are beginning to add
to our holdings in this sector.
Q. APART FROM MICROSOFT, COULD YOU TALK ABOUT OTHER TECHNOLOGY COMPANIES YOU
LIKE?
A. Oracle has done very well. The company dominates the database market, an area
in which Microsoft isn't a big player yet. It also has a big applications
business, which features the ability to download information from the factory
floor and manage it. Cisco Systems is another company we like. They make the
computers that are the backbone of the Internet.
Q. WHAT DO YOU SEE AS THE BIGGEST RISK TO THE MARKETS GOING FORWARD?
A. The biggest risk is that the current currency crisis, which is already
creating recession among our major trading partners, including Japan and
Canada, spreads to the United States. This could lead to corporate earnings
declining and, even though the Federal Reserve Board might have to cut
interest rates, such a rate reduction might not be enough to help the
economy. I'd say the odds of that happening are not terribly high, but
they're not immaterial. We have to pay attention to the possibility.
Our job is to try and position the portfolio to avoid getting caught with
exposure to an earnings slowdown. The core names in the portfolio aren't
changing, although some of the weightings among those names may have changed
a little. For example, in the past few months the retail weighting has gone
up as the consumer sector has remained strong.
/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.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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CHRISTIAN A. FELIPE IS A SENIOR VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
AND PORTFOLIO MANAGER OF MASSACHUSETTS INVESTORS GROWTH STOCK FUND, MFS(R)
STRATEGIC GROWTH FUND, AND THE MASSACHUSETTS INVESTORS GROWTH STOCK SERIES
OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS.
MR. FELIPE JOINED THE MFS RESEARCH DEPARTMENT IN 1986. HE WAS NAMED INVESTMENT
OFFICER IN 1987, ASSISTANT VICE PRESIDENT -- INVESTMENTS IN 1988, VICE PRESIDENT
- -- INVESTMENTS IN 1989, AND SENIOR VICE PRESIDENT IN 1996.
MR. FELIPE IS A GRADUATE OF THE UNIVERSITY OF CALIFORNIA, LOS ANGELES, AND THE
UNIVERSITY OF PENNSYLVANIA WHARTON SCHOOL OF FINANCE AND COMMERCE.
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. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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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: $436.1 MILLION NET ASSETS AS OF AUGUST 31, 1998
PRIOR TO APRIL 11, 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 Strategic S&P 500 Consumer
Growth Fund Composite Price Index
-- Class A Index -- U.S.
- -------------------------------------------------
1/96 $ 9,430 $10,000 $10,000
8/96 11,560 10,750 10,250
8/97 18,440 15,110 10,480
8/98 20,845 16,335 10,652
AVERAGE ANNUAL TOTAL RETURNS THROUGH AUGUST 31, 1998
CLASS A
1 Year 10 Years/Life*
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Average Annual Total Return +13.07% +34.72%
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SEC Results + 6.57% +31.76%
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CLASS B
1 Year 10 Years/Life*
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Average Annual Total Return +12.12% +34.18%
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SEC Results + 8.12% +33.16%
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CLASS C
1 Year 10 Years/Life*
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Average Annual Total Return +12.20% +34.27%
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SEC Results +11.20% +34.27%
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CLASS I
1 Year 10 Years/Life*
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Average Annual Total Return +13.32% +33.74%
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SEC Results +13.32% +33.74%
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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
TECHNOLOGY 26.3%
RETAILING 17.0%
FINANCIAL SERVICES 16.6%
LEISURE 14.0%
HEALTH CARE 7.9%
TOP 10 STOCK HOLDINGS
<TABLE>
<S> <C>
MICROSOFT CORP. 8.1% RITE AID CORP. 3.4%
Computer software and systems company Drug store chain
ASSOCIATES FIRST CAPITAL CORP. 6.3% BMC SOFTWARE INC. 3.2%
Diversified financial services company Computer software company
TYCO INTERNATIONAL LTD. 4.3% COMPUTER ASSOCIATES INTERNATIONAL, INC. 2.4%
Security systems, packaging, and electronic Computer software company
equipment conglomerate
JACOR COMMUNICATIONS, INC. 2.3%
CVS CORP. 4.0% Radio station owner and operator
Drug store chain
ORACLE CORP. 2.3%
SAFEWAY, INC. 3.9% Database software developer and manufacturer
Supermarket chain
</TABLE>
Portfolio information is as of August 31, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- August 31, 1998
Stocks - 98.9%
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ISSUER SHARES VALUE
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U.S. Stocks - 95.6%
Advertising
Young & Rubicam, Inc.* 6,100 $ 186,431
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Aerospace - 3.8%
Allied Signal, Inc. 14,000 $ 480,375
Gulfstream Aerospace Corp.* 243,550 8,554,694
United Technologies Corp. 102,464 7,435,044
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$ 16,470,113
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Banks and Credit Companies - 3.0%
Firstar Corp. 40,000 $ 1,550,000
Fleet Financial Group, Inc. 16,579 1,086,961
National City Corp. 60,949 3,580,754
Norwest Corp. 41,051 1,221,267
State Street Corp. 28,543 1,486,020
Washington Mutual, Inc. 61,446 1,966,272
Wells Fargo & Co. 7,150 2,015,406
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$ 12,906,680
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Business Machines - 1.7%
Affiliated Computer Services, Inc., "A"* 130,026 $ 4,250,225
Sun Microsystems, Inc.* 82,473 3,267,992
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$ 7,518,217
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Business Services - 1.8%
AccuStaff, Inc.* 76,610 $ 957,625
Ceridian Corp.* 23,381 1,133,979
Computer Sciences Corp. 31,723 1,794,332
DST Systems, Inc.* 52,662 2,975,403
Fiserv, Inc.* 28,969 1,129,791
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$ 7,991,130
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Chemicals - 0.4%
Sigma-Aldrich Corp. 55,300 $ 1,534,575
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Computer Hardware - Systems - 0.4%
EMC Corp.* 41,800 $ 1,888,837
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Computer Software - Personal Computers - 8.1%
Autodesk, Inc. 22,413 $ 523,904
Microsoft Corp.* 364,300 34,950,031
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$ 35,473,935
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Computer Software - Systems - 11.0%
BMC Software, Inc.* 324,462 $ 13,728,798
Cadence Design Systems, Inc.* 312,340 6,598,183
Computer Associates International, Inc. 385,480 10,407,960
Compuware Corp.* 145,226 6,598,707
Network Associates, Inc.* 11,500 370,875
Oracle Corp.* 503,467 10,037,873
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$ 47,742,396
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Consumer Goods and Services - 6.1%
Clorox Co. 18,550 $ 1,788,916
Dial Corp. 40,291 785,674
Revlon, Inc., "A"* 25,797 930,304
Service Corp. International 133,467 4,521,195
Tyco International Ltd. 333,202 18,492,711
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$ 26,518,800
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Electrical Equipment - 0.4%
Emerson Electric Co. 29,900 $ 1,704,300
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Electronics - 0.9%
Altera Corp.* 17,385 $ 506,338
AMP, Inc. 27,600 984,975
Analog Devices, Inc.* 18,047 253,786
Intel Corp. 29,885 2,127,438
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$ 3,872,537
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Entertainment - 8.4%
CBS Corp. 265,188 $ 6,894,888
Chancellor Media Corp.* 10,115 360,979
Citadel Communications Corp.* 9,800 237,650
Clear Channel Communications, Inc.* 39,114 1,760,130
Cox Radio, Inc., "A"* 24,697 1,054,253
Gemstar International Group Ltd.* 15,700 544,594
Harrah's Entertainment, Inc.* 213,105 3,076,703
Jacor Communications, Inc.* 170,708 10,071,772
MediaOne Group, Inc.* 56,500 2,316,500
Mirage Resorts, Inc.* 235,972 3,510,084
Time Warner, Inc. 55,236 4,439,593
Univision Communications, Inc., "A"* 76,630 2,040,274
Young Broadcasting, Inc., "A"* 5,100 263,606
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$ 36,571,026
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Financial Institutions - 11.8%
American Express Co. 24,932 $ 1,944,696
Associates First Capital Corp., "A" 464,526 27,465,100
CIT Group, Inc., "A" 19,635 504,374
Federal National Mortgage Assn 139,324 7,915,345
Federated Investors, Inc., "A"* 29,100 385,575
Franklin Resources, Inc. 158,711 5,118,430
Heller Financial, Inc., "A"* 7,300 144,175
Merrill Lynch & Co., Inc. 16,634 1,097,844
Morgan Stanley, Dean Witter & Co. 118,725 6,893,470
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$ 51,469,009
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Food and Beverage Products - 0.3%
Hershey Foods Corp. 11,700 $ 819,000
Ralston-Ralston Purina Co. 24,134 635,026
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$ 1,454,026
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Insurance - 1.2%
Allstate Corp. 47,500 $ 1,781,250
American International Group, Inc. 11,575 894,892
Lincoln National Corp. 21,090 1,813,740
Travelers Group, Inc. 13,595 603,278
-------------
$ 5,093,160
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Medical and Health Products - 4.3%
Abbott Laboratories, Inc. 27,000 $ 1,039,500
American Home Products Corp. 41,668 2,088,608
Bristol-Myers Squibb Co. 60,536 5,924,961
Johnson & Johnson 6,923 477,687
McKesson Corp. 22,527 1,689,525
Pfizer, Inc. 3,800 353,400
Schering Plough Corp. 78,755 6,772,930
Warner-Lambert Co. 6,400 417,600
-------------
$ 18,764,211
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Medical and Health Technology and Services - 3.5%
HBO & Co. 53,400 $ 1,134,750
Health Management Associates, Inc., "A"* 27,686 500,078
HealthSouth Corp.* 369,159 6,990,949
Humana, Inc. 30,700 399,100
Lincare Holdings, Inc.* 14,900 505,669
Total Renal Care Holdings, Inc.* 24,512 465,728
United Healthcare Corp. 148,147 5,351,810
-------------
$ 15,348,084
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Oils - 0.4%
Exxon Corp. 29,117 $ 1,905,344
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Printing and Publishing - 1.8%
Gannett Co., Inc. 99,733 $ 5,884,247
Pulitzer Publishing Co. 7,900 600,894
Scripps (E.W.) Howard, Inc. 10,800 509,625
Tribune Co. 14,050 905,347
-------------
$ 7,900,113
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Restaurants and Lodging - 3.4%
Cendant Corp.* 224,166 $ 2,591,919
Hilton Hotels Corp. 82,964 1,721,503
Marriott International, Inc., "A" 54,920 1,541,193
McDonalds Corp. 13,323 746,921
Outback Steakhouse, Inc.* 6,100 183,381
Promus Hotel Corp.* 260,621 8,014,096
-------------
$ 14,799,013
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Stores - 12.0%
CVS Corp. 483,796 $ 17,598,079
Home Depot, Inc. 127,848 4,922,148
Liz Claiborne, Inc. 20,894 595,479
Office Depot, Inc.* 219,754 5,603,727
Rite Aid Corp. 403,062 14,585,806
Staples, Inc.* 37,000 1,003,625
TJX Cos., Inc. 21,100 470,794
Wal-Mart Stores, Inc. 127,876 7,512,715
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$ 52,292,373
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Supermarkets - 4.9%
Kroger Co. 6,000 $ 270,000
Meyer (Fred), Inc.* 110,864 4,358,341
Safeway, Inc.* 428,051 16,854,508
-------------
$ 21,482,849
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Telecommunications - 6.0%
AirTouch Communications, Inc.* 42,468 $ 2,388,825
Amdocs Ltd.* 12,500 112,500
Aspect Telecommunications Corp.* 19,563 465,844
Cisco Systems, Inc.* 113,575 9,298,953
Global TeleSystems Group, Inc.* 11,500 368,000
Lucent Technologies, Inc. 35,347 2,505,219
MCI Communications Corp. 167,904 8,395,200
Qwest Communications International, Inc.* 32,959 823,975
Sprint Corp. 13,307 892,401
WorldCom, Inc.* 22,200 908,812
-------------
$ 26,159,729
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Total U.S. Stocks $ 417,046,888
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Foreign Stocks - 3.3%
France - 0.3%
Alcatel Alsthom Compagnie
(Telecommunications) 4,864 $ 829,705
Alcatel Alsthom Compagnie, ADR
(Telecommunications) 15,078 455,167
-------------
$ 1,284,872
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Germany - 0.1%
SAP AG, ADR (Computer Software - Systems) 9,100 $ 429,429
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Japan - 0.8%
Canon, Inc. (Special Products and Services) 13,000 $ 263,588
Canon, Inc., ADR (Special Products
and Services) 11,900 243,950
Olympus Optical Co. (Conglomerate) 18,000 193,631
Sony Corp. (Electronics) 13,000 948,549
Sony Corp., ADR (Electronics) 28,107 1,986,813
-------------
$ 3,636,531
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Netherlands - 0.2%
ING Groep N.V. (Financial Services) 12,424 $ 732,994
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Switzerland - 0.2%
Julius Baer Holdings (Banks and
Credit Cos.) 350 $ 968,523
- -----------------------------------------------------------------------------
United Kingdom - 1.7%
British Petroleum PLC, ADR (Oils) 89,934 $ 6,576,424
Sema Group PLC (Computer Software
- Systems) 87,476 798,928
-------------
$ 7,375,352
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Total Foreign Stocks $ 14,427,701
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Total Stocks (Identified Cost, $474,308,451) $ 431,474,589
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Preferred Stock - 0.5%
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Entertainment - 0.3%
Mediaone Group, Inc. 26,100 $ 1,448,550
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Insurance - 0.2%
Lincoln National Corp.* 35,300 $ 728,063
- -----------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $2,270,478) $ 2,176,613
- -----------------------------------------------------------------------------
Short-Term Obligations - 4.8%
- -----------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 9/16/98 $ 8,200 $ 8,181,345
Federal National Mortgage Assn., due 10/05/98 152 151,221
General Electric Capital Corp., due 9/01/98 12,600 12,600,000
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 20,932,566
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $497,511,495) $ 454,583,768
Other Assets, Less Liabilities - (4.2)% (18,524,442)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $ 436,059,326
- -----------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ---------------------------------------------------------------------------
AUGUST 31, 1998
- ---------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $497,511,495) $454,583,768
Cash 44,021
Foreign currency, at value (identified cost, $402) 411
Net receivable for forward foreign currency exchange
contracts 16,425
Receivable for Fund shares sold 5,684,662
Receivable for investments sold 1,169,032
Dividends and interest receivable 225,109
Deferred organization expenses 1,016
Other assets 890
-------------
Total assets $ 461,725,334
-------------
Liabilities:
Payable for investments purchased $ 21,437,934
Payable for Fund shares reaquired 3,826,095
Payable to affiliates -
Management fee 29,434
Shareholder servicing agent 4,415
Distribution and service fee 295,870
Administrative fee 589
Accrued expenses and other liabilities 71,671
-------------
Total liabilities $ 25,666,008
-------------
Net assets $ 436,059,326
=============
Net assets consist of:
Paid-in capital $ 462,725,397
Unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (42,910,971)
Accumulated undistributed net realized gain on
investments and foreign currency transactions 16,268,210
Accumulated net investment loss (23,310)
-------------
Total $ 436,059,326
=============
Shares of beneficial interest outstanding 23,342,241
==========
Class A shares:
Net asset value per share
(net assets of $168,536,035 / 8,971,192 shares of
beneficial interest outstanding) $18.79
======
Offering price per share (100 / 94.25) $19.94
======
Class B shares:
Net asset value and offering price per share
(net assets of $196,519,476 / 10,570,541 shares of
beneficial interest outstanding) $18.59
======
Class C shares:
Net asset value and offering price per share
(net assets of $52,668,425 / 2,827,799 shares of
beneficial interest outstanding) $18.63
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $18,335,390 / 972,709 shares of
beneficial interest outstanding) $18.85
======
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 $ 1,193,678
Interest 608,732
Foreign taxes withheld (25,762)
------------
Total investent income $ 1,776,648
------------
Expenses -
Management fee $ 1,898,993
Trustees' compensation 38,956
Shareholder servicing agent fee 291,036
Distribution and service fee (Class A) 353,262
Distribution and service fee (Class B) 1,051,236
Distribution and service fee (Class C) 290,929
Administrative fee 36,964
Auditing fees 16,465
Printing 62,477
Custodian fee 92,428
Postage 51,994
Legal fees 2,598
Amortization of organization expenses 434
Miscellaneous 225,046
------------
Total expenses $ 4,412,818
Fees paid indirectly (5,338)
Reduction of expenses by distributor (68,272)
------------
Net expenses $ 4,339,208
------------
Net investment loss $ (2,562,560)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 18,969,474
Foreign currency transactions (4,094)
------------
Net realized gain on investments and foreign
currency transactions $ 18,965,380
------------
Change in unrealized appreciation (depreciation) -
Investments $(49,633,481)
Translation of assets and liabilities in foreign currencies 16,986
------------
Net unrealized loss on investments and foreign currency
translation $(49,616,495)
------------
Net realized and unrealized loss on investments
and foreign currency transactions $(30,651,115)
------------
Decrease in net assets from operations $(33,213,675)
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment loss $ (2,562,560) $ (148,933)
Net realized gain on investment and foreign currency
transactions 18,965,380 1,914,547
Net unealized gain (loss) on investments and foreign
currency translation (49,616,495) 6,419,004
-------------- ------------
Increase (decrease) in net assets from operations $ (33,213,675) $ 8,184,618
-------------- ------------
Distributions declared to shareholders -
From net realized gain on investments (Class A) $ (507,750) $ (1,718,843)
From net realized gain on investments (Class B) (480,547) --
From net realized gain on investments (Class C) (144,468) --
From net realized gain on investments (Class I) (153,532) --
-------------- ------------
Total distributions declared to shareholders $ (1,286,297) $ (1,718,843)
-------------- ------------
Net increase in net assets from Fund share transactions $ 413,615,724 $ 40,333,116
-------------- ------------
Total increase in net assets $ 379,115,752 $ 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 $23,310 and $0, respectively) $ 436,059,326 $ 56,943,574
============== ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ----------------------------------------------------------------------------------------------------------
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 $16.79 $12.26 $10.00
------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.14) $(0.11) $ 0.02
Net realized and unrealized gain on
investments and foreign currency
transactions### 2.32 6.67 2.24
------ ------ ------
Total from investment operations $ 2.18 $ 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 $18.79 $16.79 $12.26
====== ====== ======
Total return(+) 13.07% 59.54% 22.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.36% 1.29% 0.44%+
Net investment income (loss) (0.66)% (0.82)% 0.23%+
Portfolio turnover 56% 82% 104%
Net assets at end of period (000 omitted) $168,536 $21,699 $10,145
* For the period from the commencement of 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.
### The per share amount is not in accordance with the net realized and unrealized loss for the period because of the
timing of sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the
results would have been lower.
(S) Subject to reimbursement by the Fund, the Adviser voluntarily agreed to maintain expenses of the Fund, exclusive of
management and distribution fees, at not more than 0.50% of average daily net assets. The investment adviser and the
distributor voluntarily waived a portion of their management fee and distribution fee, respectively, for certain of the
periods indicated. If these fees had been incurred by the Fund and/or if actual expenses were over this limitation, the
net investment loss per share and the ratios would have been:
Net investment loss $(0.15) $(0.15) $(0.05)
Ratios (to average net assets):
Expenses## 1.43% 1.59% 1.84%+
Net investment loss (0.72)% (1.12)% (0.66)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
1998 1997**
- ------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $16.75 $12.53
------ ------
Income from investment operations# -
Net investment loss(S) $(0.28) $(0.09)
Net realized and unrealized gain on investments and
foreign currency transactions### 2.30 4.31
------ ------
Total from investment operations $ 2.02 $ 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 $18.59 $16.75
====== ======
Total return 12.12% 33.76%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.08% 2.02%+
Net investment loss (1.36)% (1.46)%+
Portfolio turnover 56% 82%
Net assets at end of period (000 omitted) $196,519 $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.
### The per share amount is not in accordance with the net realized and unrealized loss for the period because of the
timing of sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
(S) Subject to reimbursement by the Fund, the Adviser voluntarily agreed to maintain expenses of the Fund,
exclusive of management and distribution fees, at not more than 0.50% of average daily net assets. To the
extent actual expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $ -- $(0.12)
Ratios (to average net assets):
Expenses## -- 2.51%+
Net investment loss -- (1.95)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
1998 1997***
- ------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $16.77 $12.53
------ ------
Income from investment operations# -
Net investment loss(S) $(0.28) $(0.09)
Net realized and unrealized gain on investments and
foreign currency transactions### 2.31 4.33
------ ------
Total from investment operations $ 2.03 $ 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 $18.63 $16.77
====== ======
Total return 12.20% 33.92%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.08% 2.04%+
Net investment loss (1.37)% (1.48)%+
Portfolio turnover 56% 82%
Net assets at end of period (000 omitted) $52,668 $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.
### The per share amount is not in accordance with the net realized and unrealized loss for
the period because of the timing of sales of Fund shares and the amount of per share realized
and unrealized gains and losses at such time.
(S) Subject to reimbursement by the Fund. The Adviser voluntarily agreed to maintain expenses of the Fund,
exclusive of management and distribution fees, at not more than 0.50% of average daily net assets. To
the extent actual expenses were over this limitation, the
net investment loss per share and the ratios would have been:
Net investment loss $ -- $(0.13)
Ratios (to average net assets):
Expenses## -- 2.56%+
Net investment loss -- (1.99)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
1998 1997****
- ------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $16.80 $12.08
------ ------
Income from investment operations# -
Net investment loss(S) $(0.08) $(0.04)
Net realized and unrealized gain on investments and
foreign currency transactions### 2.31 4.76
------ ------
Total from investment operations $ 2.23 $ 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 $18.85 $16.80
====== ======
Total return 13.32% 39.24%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.08% 0.94%+
Net investment loss (0.37)% (0.40)%+
Portfolio turnover 56% 82%
Net assets at end of period (000 omitted) $18,335 $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.
### The per share amount is not in accordance with the net realized and unrealized loss for the period
because of the timing of sales of Fund shares and the amount of per share realized and unrealized
gains and losses at such time.
(S) Subject to reimbursement by the Fund, the Adviser voluntarily agreed to maintain expenses of the Fund,
exclusive of management and distribution fees, at not more than 0.50% of average daily net assets. The
investment adviser and the distributor voluntarily waived a portion of their management fee and distribution fee,
respectively, for certain of the periods indicated. If these fees had been incurred by the Fund and/or if actual
expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $ -- $(0.06)
Ratios (to average net assets):
Expenses## -- 1.14%+
Net investment loss -- (0.60)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Strategic Growth Fund (the Fund) is a diversified series of MFS Series Trust
I (the Trust). The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the foreign currency and translated into U.S. dollars at the
closing daily exchange rate.
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.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend payments received in additional securities are
recorded on the ex-dividend date in an amount equal to the value of the security
on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Fund. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV. Distributions to
shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. During
the year ended August 31, 1998, $2,619,525 was reclassified from accumulated
undistributed net investment income and paid-in-capital to accumulated net
realized gain on investments due to differences between book and tax accounting
for currency transactions and the offset of net investment loss against
short-term capital gains. This change had no effect on the net assets or net
asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
average daily net assets.
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 $6,885 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
$581,154 for the year ended August 31, 1998, as its portion of the sales charge
on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class A shares
which are attributable to that securities dealer and a distribution fee to MFD
of up to 0.10% per annum of the Fund's average daily net assets attributable to
Class A shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $22,805 for the year ended August 31, 1998.
During a portion of the year, the Class A distribution fee was being waived on a
voluntarily basis at the discretion of MFD. Fees incurred under the distribution
plan during the year ended August 31, 1998, were 0.28% 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 $575 and $367 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 shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended August 31, 1998,
were $21,300, $106,839, and $11,271 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.1125%. Prior to January 1, 1998, the fee was calculated as a percentage of the
average daily net assets at an effective annual rate of 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$535,228,731 and $122,462,186, 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 $ 500,271,410
-------------
Gross unrealized depreciation $ (69,181,586)
Gross unrealized appreciation 23,493,944
-------------
Net unrealized depreciation $ (45,687,642)
=============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997
------------------------------------ ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 10,667,794 $224,279,952 1,208,172 $18,761,089
Shares issued to shareholders
in reinvestment of
distributions 26,387 457,569 139,292 1,718,872
Shares transferred to Class I -- -- (706,677) (8,960,664)
Shares reacquired (3,015,275) (65,422,263) (176,243) (2,019,399)
---------- ------------ ------- -----------
Net increase 7,678,906 $159,315,258 464,544 $ 9,499,898
========== ============ ======= ===========
<CAPTION>
Class B Shares
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997
------------------------------------ ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 11,268,558 $234,302,856 962,839 $15,559,691
Shares issued to shareholders
in reinvestment of
distributions 25,134 433,643 -- --
Shares reacquired (1,662,490) (35,110,261) (23,500) (387,233)
---------- ------------ ------- -----------
Net increase 9,631,202 $199,626,238 939,339 $15,172,458
========== ============ ======= ===========
<CAPTION>
Class C Shares
YEAR ENDED AUGUST 31, 1998 PEIOD ENDED AUGUST 31, 1997
------------------------------------ ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,790,666 $ 57,991,612 375,407 $ 6,018,343
Shares issued to shareholders
in reinvestment of
distributions 7,901 136,530 -- --
Shares reacquired (331,348) (6,905,904) (14,827) (249,686)
--------- ------------ ------- -----------
Net increase 2,467,219 $ 51,222,238 360,580 $ 5,768,657
========= ============ ======= ===========
<CAPTION>
Class I Shares
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997
------------------------------------ ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 277,623 $ 5,707,697 216,474 $ 2,446,599
Shares issued to shareholders
in reinvestment of
distributions 8,787 152,637 -- --
Shares transferred to Class A -- -- 706,677 8,960,664
Shares reacquired (114,869) (2,408,344) (121,983) (1,515,160)
--------- ------------ ------- -----------
Net increase 171,541 $ 3,451,990 801,168 $ 9,892,103
========= ============ ======= ===========
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $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 $2,335.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options, forward foreign currency exchange
contracts, swap agreements, and futures contracts. The notional or contractual
amounts of these instruments represent the investment the Fund has in particular
classes of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered.
Forward Foreign Currency Exchange Contracts
Closed forward foreign currency exchange contracts amount to a net receivable of
$16,425 with Goldman Sachs and Co. at August 31, 1998.
At August 31, 1998, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust I and Shareholders of MFS Strategic Growth
Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Strategic Growth Fund, including the schedule of portfolio investments, as of
August 31, 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
Strategic Growth 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>
- -------------------------------------------------------------------------------
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 $214,062 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 4.4%.
<PAGE>
MFS(R) STRATEGIC GROWTH FUND
TRUSTEES SECRETARY
Richard B. Bailey* - Private Stephen E. Cavan*
Investor; Former Chairman and
Director (until 1991), MFS ASSISTANT SECRETARY
Investment Management James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor CUSTODIAN
State Street Bank and Trust Company
Lawrence H. Cohn, M.D. - Chief of
Cardiac Surgery, Brigham and Women's AUDITORS
Hospital; Professor of Surgery, Ernst & Young LLP
Harvard Medical School
INVESTOR INFORMATION For MFS stock
The Hon. Sir J. David Gibbons, KBE - and bond market outlooks, call toll
Chief Executive Officer, Edmund free: 1-800-637-4458 anytime from a
Gibbons Ltd.; Chairman, Colonial touch-tone telephone.
Insurance Company, 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
Treasurer, Benchmark Advisors, Inc. 9 a.m. to 5 p.m. Eastern time (or
(corporate financial consultants); leave 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 Secretary, Boston, MA 02107-9906
MFS Investment Management
For general information, call toll
Jeffrey L. Shames* - Chairman, Chief free: 1-800-225-2606 any business
Executive Officer, and Director, day from 8 a.m. to 8 p.m. Eastern
MFS Investment Management time.
J. Dale Sherratt - President, For service to speech- or
Insight Resources, Inc. (acquisition hearing-impaired, call toll free:
planning specialists) 1-800-637-6576 any business day from
9 a.m. to 5 p.m. Eastern time. (To
Ward Smith - Former Chairman (until use this service, your phone must be
1994), NACCO Industries (holding equipped with a Telecommunications
company) Device for the Deaf.) For share
prices, account balances, and
INVESTMENT ADVISER exchanges, call toll free:
Massachusetts Financial Services Company 1-800-MFS-TALK (1-800-637-8255)
500 Boylston Street anytime from a touch-tone telephone.
Boston, MA 02116-3741
WORLD WIDE WEB
DISTRIBUTOR www.mfs.com
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Christian A. Felipe*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
<PAGE>
-------------
MFS(R) Strategic Growth Fund Bulk Rate
U.S. Postage
[Logo] M F S(R) Paid
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) -------------
500 Boylston Street
Boston, MA 02116-3741
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MSG-2 10/98 60M 90/290/390/890
