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[Logo]
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) RESEARCH
INTERNATIONAL FUND
SEMIANNUAL REPORT o FEBRUARY 28, 1998
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IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS INVESTMENT MANAGEMENT(SM)
On February 2, 1998, Keith Brodkin, a friend and
leader to everyone at MFS, died unexpectedly at
age 62. His thoughtful letters to shareholders on
[Photo of A. Keith Brodkin] the markets and economy have been an integral
part of MFS shareholder reports like this one for
many years.
Keith joined MFS in 1970 as the firm's first
fixed-income manager, managing the bond portion
of MFS(R) Total Return Fund. He went on to manage our first pure bond fund,
MFS(R) Bond Fund, when it was introduced in 1974, and he was considered a
pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS in 1987 and
four years later became Chairman and Chief Executive Officer. During his
stewardship, MFS has achieved significant growth in total assets under
management, rising from some $25 billion in 1991 to the over $70 billion
today entrusted to us by three million individual and institutional investors
worldwide. Under Keith's leadership, MFS has carefully but steadily built its
domestic and international investment capabilities through the introduction
of a range of new products and a still-growing staff that now numbers over
100 equity and fixed-income professionals.
Throughout his career, Keith was very active in a wide range of charitable
endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
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TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
A Discussion with the Director of Research ................................ 4
Fund Facts ................................................................ 8
Performance Summary ....................................................... 8
Portfolio Concentration ................................................... 10
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 23
Trustees and Officers ..................................................... 29
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HIGHLIGHTS
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o FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 10.11%, CLASS B SHARES 10.01%,
CLASS C SHARES 10.11%, AND CLASS I SHARES 10.22%. (SEE PERFORMANCE SUMMARY
FOR MORE INFORMATION.)
o THE FUND BENEFITED FROM INVESTMENTS IN THE EUROPEAN FINANCIAL SERVICES
SECTOR, WHICH WAS HELPED BY POSITIVE EARNINGS SURPRISES AND RE-RATINGS
DRIVEN BY CONSOLIDATION.
o HOLDINGS IN JAPAN, INCLUDING SONY, CANON, AND TDK, HAVE DOMINANT FRANCHISES
AND HAVE FURTHER IMPROVED THEIR COMPETITIVENESS AS THE YEN HAS WEAKENED.
o IN SOUTHEAST ASIA, THE FUND'S WEIGHTING IS RELATIVELY LOW AND IS
CONCENTRATED IN FINANCIAL SERVICES COMPANIES WHOSE ASSET QUALITIES ARE GOOD
AND WHOSE VALUATIONS HAVE MOVED TO EXTRAORDINARILY LOW LEVELS.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders:
As investment managers we take a long-term view of the world's economies, as
well as of the stock and bond markets, and try to avoid getting caught up in
short-term fluctuations. However, it is hard to ignore unexpected events such as
the Asian economic turmoil or closely watched companies that miss their
quarterly earnings estimates. Given the potential for these events and their
possible impact on major market indices, we think it's important to offer some
perspective about recent market behavior and to let you know what MFS is doing
in an effort to provide you with favorable long-term investment performance.
The most notable recent event affecting investment markets has been the Asian
turmoil, which began in the summer of 1997 as a result of slowing growth rates
in the region and excess speculation in real estate markets. Since then, most
countries in the region have begun to implement the economic and regulatory
restructuring needed to put themselves on a stronger financial foundation. While
it may be a few years before some of these countries return to solid economic
footing, and while there will probably be a relatively short-term impact on the
U.S. economy, we believe the long-term outlook for the region is quite positive.
The Asian situation has brought home the lesson that major events can quickly
impact investment markets around the world, including those of the United
States. Although U.S. equities have enjoyed a bull market lasting more than 15
years and have continued to set records in the first several weeks of 1998,
there have been brief bouts of volatility associated with the Asian turmoil, as
well as with perceived downturns for certain industries such as technology.
While we believe the long-term outlook for the equity markets is favorable,
other, unforeseen events can trigger fairly extended periods during which prices
decline or remain relatively flat. Since no one can predict market cycles, that
makes it that much more important to find companies that can keep growing in the
face of the occasional downturn and even gain market share. For us, this means
using original, bottom-up research to examine each company's earnings potential
and position as well as the overall prospects for its industry. To that end, MFS
continues to increase the research support available to portfolio managers of
MFS funds.
On the fixed-income side, MFS uses active portfolio management based on
extensive research and credit analysis to reduce the potential for price
declines and enhance the opportunity for price appreciation. For both equity and
fixed-income managers, this means visiting and meeting with thousands of
companies and issuers of credit every year, as well as attending many
presentations and closely following sources of industry research.
We believe this approach, based on thorough research, teamwork, innovative
thinking, and the free exchange of ideas, is the best way to get the most
performance for shareholders in MFS funds -- in any market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
March 16, 1998
JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE MASSACHUSETTS
INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED MFS IN 1983. AFTER
FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO MANAGER, HE WAS NAMED CHIEF
EQUITY OFFICER IN 1987 AND PRESIDENT AND A MEMBER OF THE BOARD OF DIRECTORS IN
1993. MR. SHAMES WAS APPOINTED CHAIRMAN AND CHIEF EXECUTIVE OFFICER IN FEBRUARY
1998.
A DISCUSSION WITH THE DIRECTOR OF RESEARCH
[Photo of Keven R. Parke]
Kevin R. Parke
For the six months ended February 28, 1998, Class A shares of the Fund provided
a total return of 10.11%, Class B shares 10.01%, Class C shares 10.11%, and
Class I shares 10.22%. These returns, which include the reinvestment of
distributions but exclude the effects of any sales charges, compare to an 8.46%
return for the Morgan Stanley Capital International (MSCI) Europe, Australia,
Far East (EAFE) Index, an unmanaged index of international stocks.
Q. WHAT DO YOU SEE AS SOME OF THE REASONS FOR THE FUND'S PERFORMANCE OVER THE
PAST SIX MONTHS?
A. Good stock picking is the main reason. In Europe, investments in the
financial services sector performed very well, benefiting from positive
earnings surprises and re-ratings driven by consolidation. Several
investments in the chemical and pharmaceutical sectors also added to
performance as those companies restructured, resulting in a significant
improvement in earnings. In Japan, we concentrated investments in the export
sector, in which companies like Canon and Sony benefited from a weaker yen
and significantly outperformed the market.
Q. HOW WOULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT OF THE PAST SIX MONTHS,
PARTICULARLY AS IT RELATES TO THE FUND?
A. The environment has generally been positive, with a few bumps caused by the
turmoil in Asia. In the United Kingdom and Europe, inflation is under
control, interest rates remain low, and economic growth has accelerated. Add
to that an increased focus on improving shareholder value, and you have a
very positive environment for the equity markets. The story is somewhat
different in Asia. The local economy in Japan remains depressed and, outside
of the export-oriented companies, corporate earnings visibility is very poor.
In Southeast Asia, devalued currencies and large foreign debt exposure have
caused a spike in inflation and an economic contraction. Investing in
Southeast Asia has shifted from finding companies with significant growth
potential to finding companies that can manage their way through this
turmoil.
Q. COULD YOU DESCRIBE THE FUND'S INVESTMENT PHILOSOPHY, IN TERMS OF WHAT YOU
LOOK FOR IN GLOBAL MARKETS AND STOCKS?
A. The Fund has a growth orientation. The analysts look for companies with
dominant positions in their particular markets that are able to grow earnings
at above-market rates. We like sustainable earnings growth of 15% or above,
trading at a price-to-earnings (P/E) ratio or cash flow multiple that is less
than the growth rate. The analysts are willing to look at turnaround stories
and opportunities in which they think assets are significantly undervalued;
however, the primary emphasis is on growth.
Q. COULD YOU TALK ABOUT HOW THE RESEARCH PROCESS WORKS TO SELECT STOCKS FOR
THIS FUND?
A. The basic premise of the investment process is to give a team of analysts who
are experts in particular sectors the flexibility to invest in their best
ideas in their particular industries. The committee of analysts meets on a
weekly basis to discuss the current investment environment and to evaluate
proposed changes to regional and sector weightings. New ideas are presented
by individual analysts and are critically evaluated by the committee. Ideas
approved by a majority of the committee are included in the portfolio and a
corresponding sale is agreed upon. The overriding goal is to make sure that
at any given point in time the portfolio includes only the best ideas of each
analyst.
Q. LET'S TALK ABOUT SOME OF THE MAJOR MARKETS IN WHICH THE FUND IS INVESTED,
STARTING WITH EUROPE.
A. The story in Europe is earnings growth. Earnings are strong and, although
valuations aren't particularly cheap from a historical standpoint, Europe
remains attractive relative to the United States and Japan. This is
especially true given the current low interest-rate environment. Going
forward, we expect more of the same. Companies are increasingly focused on
cutting costs and restructuring their business to increase shareholder value,
and they should have the wind at their backs with economic growth
accelerating.
Q. WHAT ABOUT ASIA?
A. Starting in Japan, some of the better performers have been Sony, Canon, and
TDK. These companies have dominant franchises around the world and, helped by
the weaker yen, have seen significant growth in volumes. While the turmoil in
Southeast Asia could cause a slowdown in demand, as long as we don't see a
significant appreciation in the yen, exporters should continue to benefit
from the strong economies in the United States and Europe. The Fund remains
significantly underweighted in the financial services sector in Japan.
Valuations have already factored in a recovery in the property market and the
economy, both of which the analysts regard as suspect. In Southeast Asia, our
weighting is relatively low. We have concentrated on some of the financial
services companies where asset quality is good and valuations are attractive.
For example, Overseas Union Bank in Singapore is trading at just over book
value versus a historical level of two times book value. This is a strong
bank in a very solid financial system. In Hong Kong, HSBC is a similar story.
We believe these companies are poised to take advantage of the turmoil and
buy assets in the region at below-market prices, ultimately improving their
positions over the long term.
Q. ANYTHING IN LATIN AMERICA?
A. About 5% of the Fund's assets are in Latin America, with the most significant
position being Telebras ("Telecomunicacoes Brasileiras"). Telebras is a play
on the underpenetration of telephones in Brazil and will also benefit from
privatization, which we think will unlock significant value. We also have a
large position in CAN TV ("Compania Anonima Nacional Telefonos de
Venezuela"), which has excellent earnings growth potential and is one of the
cheapest telecommunications companies in the region.
Q. COULD YOU TALK ABOUT SOME STOCKS OR COUNTRIES THAT PERFORMED BETTER THAN YOU
EXPECTED, AND WHY YOU THINK THEY DID WELL?
A. In Europe, companies in the financial services sector such as Lloyds TSB in
the United Kingdom, Anglo Irish Bank in Ireland, and Skandia in Sweden have
done very well. Earnings growth and valuations continue to rise as
consolidation gathers momentum.
Q. NOW, WHAT ABOUT SOME STOCKS OR COUNTRIES THAT HAVE NOT DONE AS WELL AS YOU
WOULD HAVE LIKED?
A. In Japan, some of the domestically oriented stocks, particularly Nippon
Broadcasting, have been a drag on performance. The company, which was one of
the Fund's larger positions, has been hurt by a weak domestic economy,
resulting in lower-than-expected advertising revenues.
Q. WHAT DO YOU SEE AS THE BIGGEST RISK TO THE FUND GOING FORWARD?
A. Although the Fund is somewhat underweighted in Japan, it is more heavily
invested in the export-oriented companies. Strengthening of the Japanese yen
could make things more difficult for exporters. Volume could also be
negatively impacted by weakness in the Southeast Asian economies. Also, if
there is a pickup in the Japanese economy, some of the domestically oriented
companies we've avoided, in areas such as construction and financial
services, could do well. Finally, there's the question of how much further
the financial services sector will go in Europe. Valuations have increased to
a point that a significant rise in interest rates could put some pressure on
those stocks.
Q. WHAT KIND OF ENVIRONMENT DO THE ANALYSTS SEE GOING FORWARD, AND HOW MIGHT
THIS AFFECT SOME OF THEIR INVESTMENT DECISIONS?
A. The environment in Europe continues to look good and is still presenting good
values and surprises in earnings growth. The analysts believe that's going to
continue, given the low inflation, moderate interest rates, and
restructurings going on there. We're looking for opportunities to add to our
Southeast Asian holdings as the situation in the region stabilizes. We think
the worst is over, particularly in Hong Kong and Singapore and, despite the
bounce in the markets this year, many companies with clean balance sheets and
solid franchises are still trading at discounts to their fair values. The
focus remains on globally oriented companies that can offset weakness at home
with exports to the United States and Europe.
/s/ Kevin R. Parke
Kevin R. Parke
Director of Research
The opinions expressed in this report are those of the Director of 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.
The committee of MFS research analysts is responsible for the day-to-day
management of the Fund under the general supervision of Mr. Parke.
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FUND FACTS
OBJECTIVE: SEEKS CAPITAL APPRECIATION.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 2, 1997
CLASS INCEPTION: CLASS A JANUARY 2, 1997
CLASS B JANUARY 2, 1998
CLASS C JANUARY 2, 1998
CLASS I JANUARY 2, 1997
SIZE: $3.1 MILLION NET ASSETS AS OF FEBRUARY 28, 1998
PERFORMANCE SUMMARY
Because mutual funds like MFS(R) Research International Fund are designed for
investors with long-term goals, we have provided cumulative results as well as
the average annual total returns for Class A, Class B, Class C, and Class I
shares for the applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN AS OF FEBRUARY 28, 1998
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
Life of
6 Months 1 Year Fund*
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Cumulative Total Return +10.11% +22.53% +20.69%
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Average Annual Total Return -- +22.53% +17.66%
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SEC Results -- +16.72% +12.80%
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CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
Life of
6 Months 1 Year Fund*
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Cumulative Total Return +10.01% +22.41% +20.58%
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Average Annual Total Return -- +22.41% +17.57%
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SEC Results -- +18.41% +14.18%
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*For the period from the commencement of the Fund's investment operations,
January 2, 1997, through February 28, 1998.
CLASS C INVESTMENT RESULTS
(net asset value change including reinvested distributions)
Life of
6 Months 1 Year Fund*
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Cumulative Total Return +10.11% +22.53% +20.69%
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Average Annual Total Return -- +22.53% +17.66%
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SEC Results -- +21.52% +17.66%
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CLASS I INVESTMENT RESULTS
(net asset value change including reinvested distributions)
Life of
6 Months 1 Year Fund*
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Cumulative Total Return +10.22% +22.64% +20.79%
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Average Annual Total Return -- +22.64% +17.75%
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*For the period from the commencement of the Fund's investment operations,
January 2, 1997, through February 28, 1998.
Class A share ("A") SEC results include the maximum 5.75% sales charge. Class B
and Class C shares are available as of January 2, 1998. 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.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably affected
by changes in interest rates and currency exchange rates, market conditions, and
the economic and political conditions of the countries where investments are
made. These risks may increase share price volatility.
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1998
LARGEST EQUITY SECTORS
Miscellaneous 8.0%
(Conglomerates, special products/services)
Utilities & Communications 9.0%
Consumer Staples 9.0%
Technology 11.0%
Financial Services 20.0%
Other Sectors 43.0%
For a more complete breakdown, refer to the Portfolio of Investments.
TOP 10 EQUITY HOLDINGS
NOVARTIS AG 2.3% BENCKISER N.V. 1.9%
Swiss pharmaceutical company Dutch cleaning products manufacturer
BRITISH PETROLEUM PLC 2.1% WELLA AG 1.9%
British oil exploration and German cosmetics and
production company toiletries manufacturer
ING GROEP N.V. 2.1% HENKEL KGAA 1.8%
Dutch bank German consumer products company
SECOM CO. 2.1% CANADIAN NATIONAL RAILWAY CO. 1.8%
Japanese security services company Canadian railway/transportation company
LUCASVARITY PLC 1.9% SKANDIA FORSAKRINGS AB 1.8%
British auto component manufacturer Swedish multiline insurance company
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PORTFOLIO OF INVESTMENTS (Unaudited) -- February 28, 1998
<TABLE>
<CAPTION>
Stocks - 97.0%
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ISSUER SHARES VALUE
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<S> <C> <C>
Foreign Stocks - 95.8%
Australia - 0.9%
QBE Insurance Group Ltd. (Insurance) 6,442 $ 26,606
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Austria - 0.5%
Austria Tabak AG (Tobacco)* 280 $ 14,984
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Brazil - 3.8%
Cia Cervejaria Brahma, ADR (Beverages) 1,400 $ 21,000
Hunter Douglas N.V., ADR (Consumer Goods and
Services)* 850 36,785
Souza Cruz Cia (Tobacco) 1,300 11,342
Telecomunicacoes Brasileiras S.A., ADR
(Telecommunications) 382 46,771
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$ 115,898
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Canada - 2.2%
Canadian National Railway Co. (Railroads) 873 $ 54,235
Legacy Hotel Real Estate Investment Trust (Real
Estate)*## 1,900 12,407
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$ 66,642
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Chile - 0.8%
Chilectra S.A., ADR (Utilities - Electric) 885 $ 23,895
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Czechoslovakia - 0.8%
Tabak AS (Tobacco) 100 $ 24,665
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Finland - 1.3%
Huhtamaki Oy Group (Conglomerate) 350 $ 16,976
TT Tieto Oy (Computer Software - Systems) 155 23,512
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$ 40,488
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France - 6.1%
Alcatel Alsthom Compagnie (Telecommunications) 200 $ 26,029
Compagnie Generale de Geophysique S.A., ADR
(Oil Services)* 1,700 35,913
Dassault Systemes S.A. (Computer Software - Systems) 850 34,360
Sanofi (Medical and Health Products) 300 34,015
TOTAL SA, "B" (Oils) 150 16,465
TV Francaise (Broadcasting) 270 29,283
Union des Assurances Federales S.A. (Insurance) 90 12,364
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$ 188,429
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Germany - 6.4%
Adidas-Salomon AG (Apparel and Textiles) 96 $ 15,027
Dis Deutscher Industries (Business Service)* 430 18,724
Henkel KGaA (Chemicals) 838 54,272
Phoenix AG (Auto Parts) 1,125 23,563
SAP AG, Preferred (Computer Software - Systems) 69 28,447
Wella AG (Cosmetics) 75 56,220
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$ 196,253
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Greece - 1.7%
Athens Medic Center, GDR (Medical and Health
Technology and Services) 1,350 $ 20,613
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 1,180 23,394
Papastratos Cigarettes S.A., GDR (Consumer Goods and
Services) 500 8,522
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$ 52,529
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Hong Kong - 1.9%
Hutchison Whampoa (Real Estate) 4,000 $ 28,286
Li & Fung Ltd. (Wholesale) 9,000 13,601
Wing Hang Bank Ltd. (Banks and Credit Cos.) 5,600 15,189
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$ 57,076
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Hungary - 0.9%
Magyar Tavkozlesi Rt. (Telecommunications)* 1,100 $ 28,462
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Ireland - 3.4%
Allied Irish Banks (Banks and Credit Cos.)* 3,927 $ 50,720
Anglo Irish Bank Corp. PLC (Banks and Credit Cos.)* 21,675 52,779
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$ 103,499
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Italy - 5.2%
Banca Carige S.p.A. (Banks and Credit Cos.) 800 $ 7,167
Banca Nazionale del Lavoro (Banks and Credit Cos.) 300 7,013
ERG S.p.A. (Oils)* 3,600 15,844
Gucci Group N.V. (Apparel and Textiles) 304 12,749
Industrie Natuzzi S.p.A., ADR (Consumer Goods and
Services) 1,174 28,543
Instituto Nazionale delle Assicurazioni (Insurance) 10,525 28,606
Telecom Italia S.p.A. (Telecommunications)* 6,200 42,196
Telecom Italia S.p.A., Saving Shares
(Telecommunications) 6,035 17,719
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$ 159,837
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Japan - 16.4%
Aeon Credit Service Co. Ltd. (Financial Services) 360 $ 18,410
Bridgestone Corp. (Tire and Rubber) 1,000 23,108
Canon, Inc. (Office Equipment) 1,000 22,949
Fuji Photo Film Co Ltd., ADR (Photographic Products) 600 23,700
Fujimi Inc. (Electronics) 400 18,741
Keyence Corp. (Electronics) 110 16,160
Kinki Coca-Cola Bottling Co. (Beverages) 2,000 23,346
Kirin Beverage Corp. (Beverages) 2,000 37,958
Nippon Broadcasting (Broadcasting) 1,000 49,234
Nippon Telephone & Telegraph Co. (Utilities -
Telephone) 2 18,423
NTT Data Communications Systems Co.
(Telecommunications) 1 48,678
Osaka Sanso Kogyo Ltd. (Chemicals) 6,000 13,102
Secom Co. (Consumer Goods and Services) 1,000 62,495
Sony Corp. (Electronics) 300 27,158
Sony Corp., A.D.R. (Electronics) 300 27,131
Takeda Chemical Industries (Pharmaceuticals) 1,000 27,793
Terumo Corp. (Pharmaceuticals) 1,000 14,135
Toppan Forms (Printing and Publishing)* 1,000 9,211
Ushio, Inc. (Electronics) 3,000 23,799
----------
$ 505,531
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Malaysia - 1.1%
New Straits Times Press Berhad (Printing and
Publishing) 10,000 $ 15,489
Tanjong PLC (Entertainment) 8,000 18,370
----------
$ 33,859
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Netherlands - 10.1%
Akzo Nobel N.V. (Chemicals) 260 $ 52,801
Benckiser N.V. (Consumer Goods and Services)* 1,320 56,673
Brunel International N.V. (Human Resources)* 1,500 36,675
Computer Services (Computer Software - Services)* 2,000 28,851
Fugro N.V. (Engineering)* 400 12,283
IHC Caland N.V. (Transportation)* 250 14,511
ING Groep N.V. (Financial Services)* 1,200 63,550
Koninklijke Ten Cate (Conglomerate)* 1,355 44,460
----------
$ 309,804
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Peru - 1.0%
Telefonica del Peru S.A., ADR (Telecommunications) 1,670 $ 31,626
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Philippines - 0.1%
Alsons Cement Corp. (Building Materials)## 41,500 $ 2,285
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Portugal - 3.8%
Banco Espirito Santo e Comercial de Lisboa S.A. (Banks
and Credit Cos.) 700 $ 28,410
Banco Totta E Acores (Banks and Credit Cos.) 1,575 43,651
Portugal Telecom S.A. (Utilities - Telephone) 600 31,452
Telecel - Comunicacaoes Pessoais S.A.
(Telecommunications)* 110 14,637
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$ 118,150
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Singapore - 1.5%
Hong Leong Finance Ltd. (Finance)+ 3,000 $ 3,710
Mandarin Oriental International Ltd. (Restaurants and
Lodgings)* 22,000 18,370
Overseas Union Bank (Finance) 4,000 15,085
Singapore Land Ltd. (Conglomerate) 3,000 8,420
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$ 45,585
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Spain - 1.7%
Abengoa S.A. (Construction) 410 $ 22,266
Acerinox S.A. (Iron and Steel) 209 31,442
----------
$ 53,708
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Sweden - 5.4%
Ericsson LM, "B" (Telecommunications) 405 $ 18,428
Securitas AB, "B" (Commercial Services) 775 23,492
Skandia Forsakrings AB (Insurance) 950 53,675
Sparbanken Sverige AB, "A" (Banks and Credit Cos.) 846 26,014
Volvo AB, "B" (Automobiles) 1,700 46,006
----------
$ 167,615
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Switzerland - 3.2%
Julius Baer Holdings (Banks and Credit Cos.) 7 $ 16,185
Kuoni Reisen Holdings AG (Transportation) 3 12,275
Novartis AG (Pharmaceuticals) 38 69,485
----------
$ 97,945
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United Kingdom - 15.1%
Bank of Scotland (Banks and Credit Cos.)* 2,100 $ 23,927
British Aerospace PLC (Aerospace and Defense)* 1,311 41,155
British Petroleum PLC (Oils)* 4,616 63,644
Corporate Services Group PLC (Business Services) 3,000 11,896
HSBC Holdings PLC (Financial Services)* 1,200 36,842
HSBC Holdings PLC (Financial Services)* 400 11,573
Jarvis Hotels PLC (Restaurants and Lodging)+ 10,900 29,591
Jba Holdings (Computer Systems - Software) 350 4,002
Kwik-Fit Holdings PLC (Automotive Repair Centers) 4,404 27,824
Lloyds TSB Group PLC (Banks and Credit Cos.)* 2,996 45,054
LucasVarity PLC (Automotive) 14,900 57,365
PowerGen PLC (Utilities - Electric)* 2,113 29,498
Sema Group PLC (Computer Software - Systems) 400 12,866
Tomkins PLC (Conglomerate) 5,100 29,452
Williams Holdings (Conglomerate) 7,100 41,470
----------
$ 466,159
- ------------------------------------------------------------------------------------------
Venezuela - 0.5%
Compania Anonima Nacional Telefonos de Venezuela, ADR
(Telecommunications) 409 $ 14,494
- ------------------------------------------------------------------------------------------
Total Foreign Stocks $2,946,024
- ------------------------------------------------------------------------------------------
U.S. Stocks - 1.2%
Medical and Health Products - 0.9%
American Home Products Corp. 300 $ 28,125
- ------------------------------------------------------------------------------------------
Telecommunications - 0.3%
Global TeleSystems Group, Inc.* 200 $ 7,325
- ------------------------------------------------------------------------------------------
Total U.S. Stocks $ 35,450
- ------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $2,745,099) $2,981,474
- ------------------------------------------------------------------------------------------
Short-Term Obligation - 3.9%
- ------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 3/02/98, at Amortized Cost $ 120 $ 119,981
- ------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $2,865,080) $3,101,456
Other Assets, Less Liabilities - (0.9)% (26,552)
- ------------------------------------------------------------------------------------------
Net Assets - 100.0% $3,074,904
- ------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
FEBRUARY 28, 1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified Cost, $2,865,080) $3,101,456
Cash 4,122
Foreign currency, at value (identified cost, $929) 920
Receivable for Fund shares sold 4,798
Receivable for investments sold 60,363
Dividends and interest receivable 3,019
Other assets 6,662
----------
Total assets $3,181,340
----------
Liabilities:
Payable for investments purchased $ 94,654
Net payable for forward currency exchange contracts to sell 1,129
Payable to affiliates -
Management fee 167
Shareholder servicing agent fee 20
Distribution and service fee 625
Administration fee 3
Accrued expenses and other liabilities 9,838
----------
Total liabilities $ 106,436
----------
Net assets $3,074,904
==========
Net assets consist of:
Paid-in capital $2,847,764
Unrealized appreciation on investments and translation of
assets
and liabilities in foreign currencies 235,174
Accumulated distributions in excess of net realized gain on
investments and
foreign currency transactions (1,359)
Accumulated distributions in excess of net investment
income (6,675)
----------
Total $3,074,904
==========
Shares of beneficial interest outstanding 283,280
=======
Class A shares:
Net asset value per share
(net assets of $1,470,802 / 135,523 shares of beneficial
interest outstanding) $10.85
======
Offering price per share (100 / 94.25) $11.51
======
Class B shares:
Net asset value and offering price per share
(net assets of $90,521 / 8,351 shares of beneficial
interest outstanding) $10.84
======
Class C shares:
Net asset value and offering price per share
(net assets of $119,754 / 11,037 shares of beneficial
interest outstanding) $10.85
======
Class I shares:
Net asset value, offering price, and redemption
price per share (net assets of $1,393,827 /
128,369 shares of beneficial interest outstanding) $10.86
======
On sales of $50,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 28, 1998
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 11,131
Interest 3,491
Foreign taxes withheld (840)
---------
Total investment income $ 13,782
---------
Expenses -
Management fee $ 12,571
Shareholder servicing agent fee 507
Distribution and service fee - Class A 2,097
Distribution and service fee - Class B 63
Distribution and service fee - Class C 70
Administrative fee 170
Auditing fees 7,450
Postage 157
Printing 7,444
Legal fees 654
Custodian fee 4,826
Registration fees 44,561
---------
Total expenses $ 80,570
Fees paid indirectly (150)
Preliminary reduction of expenses by investment
adviser and distributor (60,072)
---------
Net expenses $ 20,348
---------
Net investment loss $ (6,566)
---------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 2,114
Foreign currency transactions (515)
---------
Net realized gain on investments and foreign
currency transactions $ 1,599
---------
Change in unrealized appreciation (depreciation) -
Investments $ 284,237
Translation of assets and liabilities in foreign
currencies (730)
---------
Net unrealized gain on investments and foreign
currency translation $ 283,507
---------
Net realized and unrealized gain on investments
and foreign currency $ 285,106
---------
Increase in net assets from operations $ 278,540
=========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ (6,566) $ 10,672
Net realized gain on investments and foreign currency
transactions 1,599 239,440
Net unrealized gain (loss) on invesments and foreign
currency translation 283,507 (48,333)
---------- ----------
Increase in net assets from operations $ 278,540 $ 201,779
---------- ----------
Distributions declared to shareholders -
From net investment income (Class A)
$ (5,532) $ --
From net investment income (Class I) (5,140) --
In excess of net investment income (Class A) (56) --
In excess of net investment income (Class I) (53) --
From net realized gain on investments and foreign currency
transactions (Class A) (124,943) --
From net realized gain on investments and foreign currency
transactions (Class I) (116,096) --
In excess of realized gain on investments and foreign
currency transactions (Class A) (704) --
In excess of realized gain on investments and foreign
currency transactions (Class I) (655) --
---------- ----------
Total distributions declared to shareholders
$ (253,179) $ --
---------- ----------
Net increase in net assets from Fund share
transactions $ 713,455 $2,134,309
---------- ----------
Total increase in net assets $ 738,816 $2,336,088
Net assets:
At beginning of period 2,336,088 --
---------- ----------
At end of period (including accumulated undistributed net
investment income (loss) of ($6,675) and $10,672,
respectively) $3,074,904 $2,336,088
========== ==========
* For the period from the commencement of the Fund's investment operations, January 2, 1997, through August 31, 1997.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997*
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.95 $10.00
------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.03) $ 0.06
Net realized and unrealized gain on investments and foreign
currency transactions 1.02 0.89
------ ------
Total from investment operations $ 0.99 $ 0.95
------ ------
Less distributions declared to shareholders -
From net investment income $(0.04) $ --
In excess of net investment income (0.01) --
From net realized gain on investments and foreign
currency transactions (0.99) --
In excess of net realized gain on investments and foreign
currency transactions (0.05) --
------ ------
Total distributions declared to shareholders $(1.09) $ --
------ ------
Net asset value - end of period $10.85 $10.95
====== ======
Total return(+) 10.11%++ 9.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.66%+ 1.68%+
Net investment income (loss) (0.55)%+ 0.71%+
Portfolio turnover 50% 137%
Average commission rate $0.0254 $0.0198
Net assets at end of period (000 omitted) $ 1,471 $ 1,314
* For the period from the commencement of the Fund's investment operations, January 2, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
(S) For the six months ended February 28, 1998, the investment adviser, subject to reimbursement by the Fund, voluntarily agreed
to maintain expenses of the Fund, exclusive of management, distribution, and service fees, at not more than 0.40% of average
net assets. For the period ended August 31, 1997, the investment adviser voluntarily agreed to maintain the expenses of the
Fund at not more than 1.75% of the Fund's average daily net assets. The investment adviser, distributor, and shareholder
servicing agent did not impose any of their fees for the period ended August 31, 1997. If these fees had not been waived by
the Fund and/or if actual expenses had been over/under this limitation, the net investment income (loss) per share and the
ratios would have been:
Net investment loss $(0.29) $(0.01)
Ratios (to average net assets):
Expenses## 6.56%+ 3.31%+
Net investment loss (5.45)%+ (0.92)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PERIOD ENDED
FEBRUARY 28, 1998**
(UNAUDITED)
- -------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
<S> <C>
Net asset value - beginning of period $ 9.93
------
Income from investment operations# -
Net investment income loss(S) $ (0.03)
Net realized and unrealized gain on investments and foreign
currency transactions 0.94
-------
Total from investment operations $ 0.91
-------
Net asset value - end of period $ 10.84
=======
Total return 9.16%++ Ratios (to average net assets)/Supplemental data(S):
Expenses 2.40%+
Net investment loss (1.87)%+
Portfolio turnover 50%
Average commission rate $0.0254
Net assets at end of period (000 omitted) $ 91
**For the period from the inception of Class B, January 2, 1998, through February 28, 1998.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
(S)Subject to reimbursement by the Fund, the investment adviser voluntarily
agreed to maintain expenses of the Fund, exclusive of management,
distribution, and service fees, at not more than 0.40% of average 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 $ (0.10)
Ratios (to average net assets):
Expenses## 7.09%+
Net investment loss (6.56)%+
See notes to financial statements
</TABLE>
<PAGE>
Financial Highlights - continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PERIOD ENDED
FEBRUARY 28, 1998***
(UNAUDITED)
- -------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
<S> <C>
Net asset value - beginning of period $ 9.93
-------
Income from investment operations# -
Net investment loss(S) $ (0.02)
Net realized and unrealized gain on investments and foreign currency
transactions 0.94
-------
Total from investment operations 0.92
-------
Net asset value - end of period $ 10.85
=======
Total return 9.27%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 2.40%+
Net investment loss (1.87)%+
Portfolio turnover 50%
Average commission rate $0.0254
Net assets at end of period (000 omitted) $ 120
***For the period from the inception of Class C, January 2, 1998, through
February 28, 1998. +Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
(S)Subject to reimbursement by the Fund, the investment adviser voluntarily
agreed to maintain expenses of the Fund, exclusive of management,
distribution, and service fees, at not more than 0.40% of average 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 $(0.08)
Ratios (to average net assets):
Expenses## 7.09%+
Net investment loss (6.56)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED PERIOD ENDED
FEBRUARY 28, AUGUST 31,
1998 1997****
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
CLASS I
- -------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $ 10.95 $ 10.00
------- -------
Income from investment operations# -
Net investment income (loss)(S) $ (0.02) $ 0.07
Net realized and unrealized gain on investments and foreign
currency transactions 1.02 0.88
------- -------
Total from investment operations $ 1.00 $ 0.95
------- -------
Less distributions declared to shareholders -
From net investment income
$ (0.05) $ --
In excess of net investment income 0.00+++ --
From net realized gain on investments and foreign currency
transactions (1.03) --
In excess of net realized gain on investments and foreign
currency transactions (0.01) --
------- -------
Total distributions declared to shareholders $ (1.09) $ --
------- -------
Net asset value - end of period $ 10.86 $ 10.95
======= ======
Total return 10.22%++ 9.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.54%+ 1.68%+
Net investment income (loss) (0.46)%+ 0.85%+
Portfolio turnover 50% 137%
Average commission rate $0.0254 $0.0198
Net assets at end of period (000 omitted) $ 1,394 $ 1,022
****For the period from the inception of Class I, 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 six months ended February 28, 1998, the investment adviser, subject
to reimbursement by the Fund, voluntarily agreed to maintain expenses of the
Fund, exclusive of management fees, at not more than 0.40% of average net
assets. For the period ended August 31, 1997, the investment adviser
voluntarily agreed to maintain the expenses of the Fund at not more than
1.75% of the Fund's average daily net assets. The investment adviser and
shareholder servicing agent did not impose any of their fees for the period
ended August 31, 1997. If these fees had not been waived by the Fund and/or
if actual expenses had been over/under this limitation, the net investment
income (loss) per share and the ratios would have been:
Net investment loss $ (0.27) --
Ratios (to average net assets):
Expenses## 6.23%+ 2.81%+
Net investment loss (5.15)%+ (0.28)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Research International Fund (the Fund) is a diversified series of MFS Series
Trust I (the Trust). The Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Securities for which there are
no such quotations or valuations are valued at fair value as determined in good
faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that result from fluctuations in foreign currency exchange rates is not
separately disclosed.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign-currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign-currency transactions.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized or accreted for financial statement and tax reporting
purposes as required by federal income tax regulations. Dividends received in
cash are recorded on the ex-dividend date. Dividend payments received in
additional securities are recorded on the ex-dividend date in an amount equal to
the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
The Fund offers multiple classes of shares. The classes of shares differ in
their respective distribution and service fees. All shareholders bear the common
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.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 1.00% of
average daily net assets.
The Fund has a temporary expense reimbursement agreement whereby MFS has
voluntarily agreed to pay all of the Fund's operating expenses, exclusive of
management, distribution, and service fees. The Fund in turn will pay MFS an
expense reimbursement fee not greater than 0.40% of average daily net assets. To
the extent that the expense reimbursement fee exceeds the Fund's actual
expenses, the excess will be applied to amounts paid by MFS in prior years. At
February 28, 1998, the aggregate unreimbursed expenses owed to MFS by the Fund
amounted to $51,523.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee at
the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC). The Trustees are currently not receiving any
payments for their services to the Fund.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, did not
receive any sales charges on sales of Class A shares for the six months ended
February 28, 1998.
The Trustees have adopted a distribution plan for Class A, Class B, and Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with MFD of up to 0.25% per annum of
the Fund's average daily net assets attributable to Class A shares which are
attributable to that securities dealer, a distribution fee to MFD of up to 0.10%
per annum of the Fund's average daily net assets attributable to Class A shares,
commissions to dealers and payments to MFD wholesalers for sales at or above a
certain dollar level, and other such distribution-related expenses that are
approved by the Fund. MFD retains the service fee for accounts not attributable
to a securities dealer. Fees incurred under the distribution plan during the six
month period ended February 28, 1998, were 0.20% of average daily net assets
attributable to Class A shares on an annualized basis. Prior to January 1, 1998,
MFD voluntarily waived the distribution and service fee for Class A shares.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average net assets attributable to Class B and Class C shares. MFD will
pay to securities dealers that enter into a sales agreement with MFD all or a
portion of the service fee attributable to Class B and Class C shares, and will
pay to such securities dealers all of the distribution fee attributable to Class
C shares. The service fee is intended to be additional consideration for
services rendered by the dealer with respect to Class B and Class C shares. MFD
retains the service fee for accounts not attributable to a securities dealer.
Fees incurred under the distribution plan during the period ended February 28,
1998, was 1.00% of average net assets attributable to Class B and Class C shares
on an annualized basis.
Purchases of $1 million or more of Class A shares, and certain purchases by
retirement plans are not subject to an initial sales charge; however, a
contingent deferred sales charge (CDSC) of 1% will be imposed on such purchases
in the event of certain shareholder redemption transactions within 12 months
following such purchases. A contingent deferred sales charge is imposed on
shareholder redemptions of Class B shares in the event of a shareholder
redemption within six years of purchase. A contingent deferred sales charge is
imposed on shareholder redemptions of Class C shares in the event of a
shareholder redemption within twelve months of purchase. MFD receives all
contingent deferred sales charges.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the average daily net assets at an effective annual rate of up to
0.1125%. Prior to January 1, 1998, the fee was calculated as a percentage of the
average daily net assets at an effective annual rate of up to 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, aggregated $1,652,277 and $1,225,871, 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 $2,865,080
----------
Gross unrealized appreciation $ 409,950
Gross unrealized depreciation (173,574)
----------
Net unrealized appreciation $ 236,376
==========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Class A Shares
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28, 1998 PERIOD ENDED AUGUST 31, 1997*
---------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,913 $ 40,450 145,874 $1,462,123
Shares issued to shareholders in
reinvestment of distributions 12,095 114,272 -- --
Shares reacquired (425) (1,660) (25,934) (255,253)
------ -------- ------- ----------
Net increase 15,583 $153,062 119,940 $1,206,870
====== ======== ======= ==========
<CAPTION>
Class B Shares
PERIOD ENDED FEBRUARY 28, 1998**
--------------------------------
SHARES AMOUNT
--------------------------------
<S> <C> <C>
Shares sold 8,780 $ 90,032
Shares reacquired (429) (4,507)
----- --------
Net increase 8,351 $ 85,525
===== ========
<CAPTION>
Class C Shares
PERIOD ENDED FEBRUARY 28, 1998**
SHARES AMOUNT
--------------------------------
<S> <C> <C>
Shares sold 11,134 $113,567
Shares reacquired (97) (1,001)
------ --------
Net increase 11,037 $112,566
====== ========
<CAPTION>
Class I Shares
SIX MONTHS ENDED FEBRUARY 28, 1998 PERIOD ENDED AUGUST 31, 1997***
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 29,028 $312,966 100,754 $1,010,565
Shares issued to shareholders in
reinvestment of distributions 12,558 117,016 -- --
Shares reacquired (6,582) (67,680) (7,389) (83,126)
------ -------- ------- ----------
Net increase 35,004 $362,302 93,365 $ 927,439
====== ======== ====== ==========
</TABLE>
*For the period from the commencement of the Fund's investment operations,
January 2, 1997, through August 31, 1997.
**For the period from the inception of Class B and Class C, January 2, 1998,
through February 28, 1998.
***For the period from the inception of Class I, January 2, 1997, through
August 31, 1997.
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the six
month period ended February 28, 1998, was $2.
(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 forward foreign currency exchange 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
<TABLE>
<CAPTION>
NET
SETTLEMENT CONTRACTS TO IN EXCHANGE CONTRACTS UNREALIZED
DATE DELIVER FOR AT VALUE* DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 5/15/98 MYR 140,134 36,800 37,929 $(1,129)
-------
</TABLE>
MYR = Malaysian Ringgits
*At February 28, 1998, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At February 28, 1998,
the Fund owned the following restricted securities (constituting 1.1% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The Fund does not have the right to demand that such securities be
registered. The value of these securities is determined by valuations supplied
by a pricing service of brokers, or if not available, in good faith by or at the
direction of the Trustees.
DESCRIPTION DATE OF ACQUISITION SHARE AMOUNT COST VALUE
- --------------------------------------------------------------------------------
Jarvis Hotels PLC 1/7/97 - 4/25/97 10,900 $30,014 $29,591
Hong Leong Finance Ltd. 1/15/96 3,000 11,940 3,710
-------
$33,301
=======
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS(R) RESEARCH INTERNATIONAL FUND
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until
1991), MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor
CUSTODIAN
Lawrence H. Cohn, M.D. - Chief of State Street Bank and Trust Company
Cardiac Surgery, Brigham and Women's
Hospital; Professor of Surgery, Harvard INVESTOR INFORMATION
Medical School For MFS stock and bond market
outlooks, call toll free:
The Hon. Sir J. David Gibbons, KBE - 1-800-637-4458 anytime from a
Chief Executive Officer, Edmund Gibbons touch-tone telephone.
Ltd. For information on MFS mutual funds,
call your financial adviser or, for
Abby M. O'Neill - Private Investor an information kit, call toll free:
1-800-637-2929 any business day from
Walter E. Robb, III - President and 9 a.m. to 5 p.m. Eastern time (or
Treasurer, Benchmark Advisors, Inc. leave a message anytime).
(corporate financial consultants);
President, Benchmark Consulting Group, INVESTOR SERVICE
Inc. (office services) MFS Service Center, Inc.
P.O. Box 2281
Arnold D. Scott* - Senior Executive Vice Boston, MA 02107-9906
President, Director, and Secretary, MFS
Investment Management For general information, call toll
free: 1-800-225-2606 any business
Jeffrey L. Shames* - Chairman, Chief day from 8 a.m. to 8 p.m. Eastern
Executive Officer, and Director, MFS time.
Investment Management
For service to speech- or Investment
J. Dale Sherratt - President, Insight hearing-impaired, call toll free:
Resources, Inc. (acquisition planning 1-800-637-6576 any business day from
specialists) 9 a.m. to 5 p.m. Eastern time. (To
use this service, your phone must be
Ward Smith - Former Chairman (until equipped with a Telecommunications
1994), NACCO Industries (holding Device for the Deaf.)
company)
For share prices, account balances,
INVESTMENT ADVISER and 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 www.mfs.com
DISTRIBUTOR
MFS Fund Distributors, Inc. [graphic omitted]
500 Boylston Street For the fourth year in a row, MFS
Boston, MA 02116-3741 earned a #1 ranking in the DALBAR,
Inc. Broker/Dealer Survey, Main
PORTFOLIO MANAGER Office Operations Service Quality
Kevin R. Parke* Category. The firm achieved a 3.42
overall score on a scale of 1 to 4
TREASURER in the 1997 survey. A total of 111
W. Thomas London* firms responded, offering input on
the quality of service they received
ASSISTANT TREASURERS from 29 mutual fund companies
Mark E. Bradley* nationwide. The survey contained
Ellen Moynihan* questions about service quality in
James O. Yost* 11 categories, including "knowledge
of operations contact," "keeping you
informed," and "ease of doing
business" with the firm.
*Affiliated with the Investment Adviser
<PAGE>
----------------
MFS(R) RESEARCH INTERNATIONAL FUND Bulk Rate
U.S. Postage
Paid
[Logo] MFS
INVESTMENT MANAGEMENT ----------------
We invented the mutual fund(SM)
500 Boylston Street
Boston, MA 02116-3741
[Dalbar Logo]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MRI-3 4/98 6M 99/299/399/899
