<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) NEW
DISCOVERY FUND
ANNUAL REPORT o AUGUST 31, 1999
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 17
Notes to Financial Statements ............................................. 24
Independent Auditors' Report .............................................. 30
MFS' Year 2000 Readiness Disclosure ....................................... 32
Trustees and Officers ..................................................... 33
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
The current investment and economic environment bears little resemblance to
last year's. One year ago, global economies were floundering, and the crisis
in Asia threatened an already weak U.S. economy. Corporate earnings were flat,
and economists used the word "deflation" for the first time in recent memory.
Entering 1999, expectations for corporate earnings growth were lowered
dramatically. In an attempt to foster U.S. growth, the Federal Reserve Board
(the Fed) lowered interest rates.
As a result, this year the U.S. economy is booming and unemployment is low.
Many corporations are focused on improving their profitability, and investors
have been rewarded with positive surprises across a variety of industries. Our
analysts predict that corporate earnings growth for 1999
will average 12% - 15%.
Global economies also are showing signs of strength, and the Asian crisis
has passed. In fact, Japan's economic woes seem to have reached bottom.
Although the process is in its infancy, some Japanese corporations not only
are talking about restructuring and cost cutting, they also are beginning to
take action, looking within to become more competitive and improve returns on
equity. While still lagging the United States, Europe is beginning to
restructure and consolidate. These signs of international growth have
contributed to concerns that the U.S. economy now may be too strong.
In June, and again in August, the Fed raised rates by one-quarter of a
percentage point to help ward off the specter of inflation.
After an unprecedented four years of 20% annual returns in the U.S. equity
market, we fear that many investors have become accustomed to high returns and
have lost sight of the risks they take on to achieve them. In the current
market many investors are taking on additional risk - whether through day
trading or investing in speculative Internet stocks.
Risks are as much a part of the market today as they were one year ago.
We believe the market remains overvalued, with stocks priced 30% above our
analysts' earnings projections. And market narrowness has not abated; the top
25 stocks in the Standard & Poor's 500 Composite Index, a popular, unmanaged
index of common stock total return performance, are still the most overvalued.
Such extreme overvaluation makes the stock market sensitive to interest-rate
news and any negative earnings surprises. The Year 2000 (Y2K) computer problem
is another factor causing investor concern. While we believe corporate America
is well prepared to address any Y2K situations that may arise at year-end, no
one can predict investor behavior. In our opinion, it is investor behavior
that has the greatest potential to create market volatility.
We believe the best way to address Y2K and other market risks is
through our continuing commitment to MFS Original Research(R) and our
fundamental investment tenet of long-term investing. Whether markets
are up or down, MFS analysts focus on analyzing industries and visiting
companies to determine the long-term winners and the prices that will make
them attractive opportunities. Because all companies will not benefit equally
from the improving international environment, bottom-up research remains
critical to identifying those that we believe are successfully restructuring,
consolidating, and gaining market share.
Changes in market and economic conditions can't be predicted but should always
be expected. The changes we have seen over the past year only reinforce our
commitment to long-term planning and investing. We believe volatility helps to
create opportunity for long-term investors to buy solid companies at
attractive prices. For this reason, we are continuing to expand our domestic
and international capabilities to ensure that MFS has primary, in-house
research on companies worldwide. We believe that we have built the right
investment team, backed by MFS Original Research, to take advantage of those
opportunities for our shareholders.
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 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Brian E. Stack]
Brian E. Stack
For the 12 months ended August 31, 1999, Class A shares of the Fund provided a
total return of 38.44%, Class B shares 37.56%, Class C shares 37.53%, and
Class I shares 39.06%. These returns include the reinvestment of any
distributions but exclude the effects of any sales charges and compare to a
28.36% return for the Russell 2000 Total Return Index (the Russell 2000), an
unmanaged index comprised of 2,000 of the smallest U.S.-domiciled company
common stocks that are traded on the New York Stock Exchange, the American
Stock Exchange, and NASDAQ, and to a 33.30% return for the average small-cap
fund tracked by Lipper Analytical Services, Inc., an independent company that
reports mutual fund performance, over the same period.
Q. WHAT FACTORS CONTRIBUTED TO THE PORTFOLIO'S STRONG PERFORMANCE FOR THE
PERIOD?
A. We believe, based on our observation of some market broadening over the
period, that small-cap stocks may be coming into their own after a three-
year domination of the equity market by large-cap stocks. Our overweighting
in the technology sector compared to the Russell 2000 has contributed to
performance. Specifically, we like software stocks because they compete on
the basis of their intellectual property and proprietary design features.
Such characteristics allow companies to achieve high profit margins without
large investments of capital. For example, we purchased shares of Synopsys,
which develops software to design integrated circuits. Similarly, the Fund
has benefited from owning semiconductor companies, whose products also rely
on intellectual content. Some semiconductor companies we hold are PMC-Sierra,
DSP Communications, and Lattice Semiconductors. These companies' products are
often part of the Internet's and wireless communications' infrastructure.
Q. WHAT COMPANY COMES TO MIND AS AN OUTSTANDING SUCCESS STORY?
A. PMC-Sierra is a semiconductor company focusing on high-speed inter-
networking components for the tele- and data communications infrastructure.
The market for several of the company's key products matured earlier in the
decade, and growth slowed. The company was reinvigorated when new management
refocused toward communications and networking components, and the company's
stock price increased 10-fold over the last 12 months.
Q. WAS THE PORTFOLIO INVESTED IN INTERNET STOCKS?
A. We were underweighted in Internet stocks, far less than the Russell 2000,
which hurt our relative performance over the period. We have been cautious
about this area for three reasons: first, many pure Internet companies
often have fluid, constantly evolving business models; second, their
businesses may lack entry barriers, leaving them vulnerable to venture-
capital-financed competition; and third, their often high valuations are
likely to discount these risks. At the same time, we are great believers in
the potential of the Internet and have invested indirectly in it through
some of our technology holdings such as RSA Security, formerly Security
Dynamics Technologies, which enables secure transactions over the Internet.
Likewise, we own shares in Transaction Systems Architects, a leading global
provider of software used to secure electronic payments.
Q. WHAT OTHER TYPES OF COMPANIES HAS MFS ORIGINAL RESEARCH(R) UNCOVERED?
A. We like the fundamentals of vendors of information technology. These
companies are benefiting from the diffusion of technology throughout
corporate America, although they were hurt during the period by concerns
about Year 2000 (Y2K) computer issues. In this group is NOVA Corp., a
credit card processor. Another sector we like is health care, for example,
Cytyc Corp., which has developed an improved Pap smear test. Finally, we
like media companies. For example, Scholastic Corp. has a vast library of
content, such as the Harry Potter, Magic School Bus, and Goosebumps series,
which are distributed via print, movies, television, and the Internet.
Q. IS THE PORTFOLIO VULNERABLE TO MARKET CONCERNS ABOUT INTEREST-RATE INCREASES?
A. Possibly. High growth stocks, such as those in the Fund, tend to
support high valuations and any increase in interest rates is likely to
depress valuations.
/s/ Brian E. Stack
Brian E. Stack
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current 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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BRIAN E. STACK IS SENIOR VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
AND PORTFOLIO MANAGER OF MFS(R) NEW DISCOVERY FUND AND THE NEW DISCOVERY
SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS. HE IS ALSO A
PORTFOLIO MANAGER OF MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND AND MFS
NEW DISCOVERY SERIES (PART OF MFS(R) VARIABLE INSURANCE TRUST(SM)).
MR. STACK JOINED MFS IN 1993 AS A RESEARCH ANALYST FOLLOWING THE
CHEMICAL, HOSPITAL MANAGEMENT, HEALTH MAINTENANCE ORGANIZATIONS, MEDICAL
SERVICES, AND BUSINESS SERVICES INDUSTRIES. HE WAS NAMED PORTFOLIO
MANAGER IN 1996 AND SENIOR VICE PRESIDENT IN 1999. PRIOR TO JOINING MFS,
HE HAD WORKED AS AN EQUITY ANALYST SINCE 1987. HE IS A GRADUATE OF
BOSTON COLLEGE AND HAS AN M.B.A. DEGREE FROM THE UNIVERSITY OF VIRGINIA.
ALL EQUITY PORTFOLIO MANAGERS BEGAN THEIR CAREERS AT MFS INVESTMENT
MANAGEMENT(R) AS RESEARCH ANALYSTS. OUR PORTFOLIO MANAGERS ARE SUPPORTED
BY AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL
RESEARCH(R), A COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING
SECURITIES.
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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 consultant, 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, 1997
CLASS INCEPTION: CLASS A JANUARY 2, 1997
CLASS B NOVEMBER 3, 1997
CLASS C NOVEMBER 3, 1997
CLASS I JANUARY 2, 1997
SIZE: $507.7 MILLION NET ASSETS AS OF AUGUST 31, 1999
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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 the commencement of the Fund's investment operations,
January 2, 1997, through August 31, 1999. Index information is from January 1,
1997.)
MFS Russell
New Discovery Fund - Class A 2000 Total Return Index
---------------------------- -----------------------
January, 1997 $ 9,430 $10,000
August, 1997 $12,320 $11,800
August, 1998 $11,720 $ 9,510
August, 1999 $16,222 $12,205
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH AUGUST 31, 1999
CLASS A
1 Year Life*
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Cumulative Total Return +38.44% +72.12%
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Average Annual Total Return +38.44% +22.64%
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SEC Results +30.48% +19.94%
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CLASS B
1 Year Life*
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Cumulative Total Teturn +37.56% +68.21%
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Average Annual Total Return +37.56% +22.14%
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SEC Results +33.56% +21.32%
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CLASS C
1 Year Life*
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Cumulative Total Return +37.53% +68.33%
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Average Annual Total Return +37.53% +22.17%
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SEC Results +36.53% +22.17%
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CLASS I
1 Year Life*
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Cumulative Total Return +39.06% +73.70%
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Average Annual Total Return +39.06% +23.07%
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COMPARATIVE INDICES
1 Year Life*
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Average small-cap fund** +33.30% +9.08%
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Russell 2000 Total Return Index+ +28.36% +7.76%
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* For the period from the commencement of the Fund's investment operations,
January 2, 1997, through August 31, 1999. Index information is from January
1, 1997.
** Source: Lipper Analytical Services, Inc.
+ Source: Standard & Poor's Micropal, Inc.
<PAGE>
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.
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.
Investing in small or emerging growth companies involves greater risk than is
customarily associated with more-established companies. These risks may
increase share price volatility. See the prospectus for details.
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1999
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 29.0%
CONGLOMERATES, SPECIAL PRODUCTS/SERVICES 28.5%
HEALTH CARE 13.5%
LEISURE 10.3%
ENERGY 5.3%
TOP 10 STOCK HOLDINGS
GEMSTAR INTERNATIONAL GROUP LTD. 3.8% IDEXX LABORATORIES, INC. 1.7%
Audio/video product company Medical instruments company
SECURITY DYNAMICS TECHNOLOGIES, INC. 2.2% DST SYSTEMS, INC. 1.6%
Software for secure online transactions Financial information services
company
MEDPARTNERS, INC. 2.1% BISYS GROUP, INC. 1.6%
Health care cost-containment company Banking computer services company
INTERMEDIA COMMUNICATIONS, INC. 1.9% SUNGARD DATA SYSTEMS, INC. 1.5%
Telecommunications and data communications Investment software
services provider
SCHOLASTIC CORP. 1.5%
NOVA CORP. 1.9% Multimedia publisher
Credit card processing company
This portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- August 31, 1999
Stocks - 98.9%
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ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
U.S. Stocks - 97.7%
Advertising - 0.4%
TMP Worldwide, Inc.* 32,600 $ 1,805,225
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Airlines - 0.8%
Atlas Air, Inc.* 100,464 $ 2,737,644
Skywest, Inc. 67,567 1,359,786
------------
$ 4,097,430
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Auto Parts - 0.5%
Brooks Automation, Inc.* 108,800 $ 2,366,400
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Business Machines - 2.3%
Affiliated Computer Services, Inc., "A"*# 176,259 $ 7,535,072
Kulicke & Soffa Industries, Inc.* 197,000 4,050,813
------------
$ 11,585,885
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Business Services - 17.5%
BISYS Group, Inc.* 166,436 $ 7,905,710
Bright Horizons Family Solutions, Inc.* 62,800 1,114,700
Catalina Marketing Corp.* 21,537 1,954,483
Ceridian Corp.* 72,400 2,027,200
Complete Business Solutions, Inc.* 214,600 3,312,888
Concord EFS, Inc.* 83,700 3,107,363
Dendrite International, Inc.* 99,433 4,138,899
Diamond Technology Partners, Inc., "A"* 103,700 3,435,062
DST Systems, Inc.* 122,357 8,136,740
IMRglobal Corp.* 353,200 6,026,475
Learning Tree International, Inc.* 287,981 3,671,758
Meta Group, Inc.* 150,049 2,438,296
Modis Professional Services, Inc.* 194,211 3,070,961
Nextera Enterprises, Inc.* 597,400 2,725,638
NOVA Corp.* 366,872 9,538,672
Professional Detailing, Inc.* 38,949 1,217,156
Quintiles Transnational Corp.* 150,561 5,391,966
Radiant Systems, Inc.* 181,400 3,571,312
Renaissance Worldwide, Inc.* 195,727 954,169
Romac International, Inc.* 200,700 1,455,075
SunGard Data Systems, Inc.* 309,990 7,749,750
Technology Solutions Co.* 482,760 5,793,120
------------
$ 88,737,393
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Computer Software - Personal Computers - 0.2%
Intuit, Inc.* 11,825 $ 1,059,076
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Computer Software - Services - 1.5%
Entrust Technologies, Inc.* 40,000 $ 890,000
Hyperion Solutions Corp.* 179,200 2,744,000
Tier Technologies, Inc.* 532,500 3,993,750
------------
$ 7,627,750
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Computer Software - Systems - 15.1%
Active Software, Inc.* 3,625 $ 62,984
Agile Software Corp.* 350 17,413
Apex, Inc.* 77,800 2,581,987
Aspen Technology, Inc.*# 330,913 2,833,443
AVT Corp.* 53,900 1,522,675
Black Box Corp.* 45,480 2,086,395
Cadence Design Systems, Inc.* 399,500 5,443,187
Checkfree Holdings Corp.* 132,400 3,872,700
Clarify, Inc.* 96,800 4,259,200
CSG Systems International, Inc.* 126,200 2,847,387
Edify Corp.* 62,300 708,662
Etec Systems, Inc.* 157,500 6,930,000
Exchange Applications Software* 111,300 3,325,087
Fair, Isaac & Co., Inc. 3,260 92,095
Harbinger Corp.* 295,702 3,548,424
Liberate Technologies* 63,575 1,676,791
MMC Networks, Inc.* 18,900 583,538
Packeteer, Inc.* 575 21,203
Paradyne Networks, Inc.* 42,300 1,863,844
Peerless Systems Corp.* 104,200 1,497,875
Quest Software, Inc.* 1,100 46,063
Security Dynamics Technologies, Inc.* 476,515 11,257,667
Silverstream Software, Inc.* 1,925 57,991
Sterling Software, Inc.* 85,720 1,725,115
Synopsys, Inc.* 110,545 6,183,611
Transaction Systems Architects, Inc., "A"* 212,276 6,248,875
Vantive Corp.* 328,227 2,728,387
Wind River Systems, Inc.* 153,999 2,454,359
------------
$ 76,476,958
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Conglomerates - 1.3%
Sodexho Marriott Services, Inc.* 351,200 $ 4,960,700
Valley Media, Inc.* 126,000 1,543,500
------------
$ 6,504,200
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Consumer Goods and Services - 2.9%
Blyth Industries, Inc.* 73,100 $ 2,069,644
Galileo International, Inc. 105,039 5,094,391
InfoUSA, Inc., "A"* 142,609 713,045
InfoUSA, Inc., "B"* 72,256 365,796
LoJack Corp.* 183,400 1,662,062
Sportsline USA, Inc.* 194,925 4,702,566
------------
$ 14,607,504
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Containers - 0.3%
Ivex Packaging Corp.* 107,800 $ 1,670,900
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Electrical Equipment - 0.6%
QLogic Corp.* 33,900 $ 2,951,419
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Electronics - 10.2%
Analog Devices, Inc.* 105,465 $ 5,431,448
Applied Micro Circuits Corp.* 30,400 2,804,400
Burr-Brown Corp.* 149,959 5,717,187
Cable Design Technologies Corp.* 130,962 2,758,387
Credence Systems Corp.* 55,600 2,390,800
DSP Communications, Inc.* 151,700 3,564,950
DuPont Photomasks, Inc.*# 53,800 2,885,025
GaSonics International Corp.*# 193,200 3,042,900
Integrated Device Technology, Inc.* 108,600 2,117,700
Lattice Semiconductor Corp.* 69,234 4,266,545
MKS Instruments, Inc.* 165,700 3,044,738
Photronics, Inc.* 138,655 3,310,388
PMC-Sierra, Inc.* 49,614 4,614,102
Sawtek, Inc.* 75,600 2,499,525
SIPEX Corp.* 158,373 2,801,222
Triquint Semiconductor, Inc.* 15,000 793,125
------------
$ 52,042,442
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Entertainment - 5.2%
Emmis Broadcasting Corp., "A"* 50,700 $ 2,864,550
Gemstar International Group Ltd.* 274,488 18,939,672
Young Broadcasting, Inc., "A"* 80,100 4,821,019
------------
$ 26,625,241
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Financial Institutions - 1.4%
Conning Corp. 84,541 $ 972,222
Federated Investors, Inc., "A" 125,300 2,302,387
Financial Federal Corp.* 75,700 1,424,106
Waddell & Reed Financial, Inc., "A" 113,408 2,572,944
------------
$ 7,271,659
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Food and Beverage Products - 0.8%
Del Monte Foods Co.* 268,600 $ 4,062,575
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Insurance - 0.3%
Inspire Insurance Solutions, Inc.* 171,500 $ 1,682,844
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Internet - 1.4%
Chemdex Corp.* 1,900 $ 51,300
Netopia, Inc.* 68,000 1,878,500
Security First Technologies Corp.* 49,400 1,827,800
VeriSign, Inc.* 25,300 2,740,306
VerticalNet, Inc.* 19,200 662,400
------------
$ 7,160,306
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Machinery - 0.8%
Applied Science and Technology, Inc.* 73,200 $ 1,409,100
Asyst Technologies, Inc.* 77,600 2,425,000
------------
$ 3,834,100
- --------------------------------------------------------------------------------
Medical and Health Products - 1.1%
CLOSURE Medical Corp.* 23,400 $ 333,450
Haemonetics Corp.* 172,718 3,378,796
PSS World Medical, Inc.* 186,646 1,668,148
------------
$ 5,380,394
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Medical and Health Technology and Services - 12.2%
Cytyc Corp.* 80,661 $ 2,722,309
Health Management Associates, Inc., "A"* 558,100 4,464,800
Henry Schein, Inc.* 117,500 2,004,844
IDEXX Laboratories, Inc.* 511,711 8,699,087
IDX Systems Corp.* 186,737 3,781,424
Impath, Inc.* 149,100 4,062,975
LifePoint Hospitals, Inc.* 308,400 2,120,250
Lincare Holdings, Inc.* 55,000 1,450,625
Martek Biosciences Corp.* 110,752 948,314
MedPartners, Inc.* 1,493,700 10,455,900
Mid Atlantic Medical Services, Inc.* 239,107 2,017,465
Orthodontic Centers of America, Inc.* 143,575 2,333,094
Osteotech, Inc.* 137,800 2,842,125
Parexel International Corp.* 267,200 2,638,600
Quorum Health Group, Inc.* 140,500 1,238,156
Superior Consultant Holdings Corp.* 68,925 1,576,659
Total Renal Care Holdings, Inc.* 717,437 5,784,336
Ventana Medical Systems, Inc.* 104,866 1,677,856
V.I. Technologies, Inc.* 192,921 1,036,951
------------
$ 61,855,770
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Oil Services - 4.5%
Cooper Cameron Corp.* 130,600 $ 5,436,225
Dril-Quip, Inc.* 29,145 814,239
Global Industries, Inc.* 575,975 6,443,720
Input/Output, Inc.* 335,697 2,475,765
National Oilwell, Inc.* 107,285 1,823,845
Noble Drilling Corp.* 201,100 4,952,088
Weatherford International, Inc.* 31,000 1,104,375
------------
$ 23,050,257
- --------------------------------------------------------------------------------
Oils - 0.7%
Newfield Exploration Co.* 121,700 $ 3,696,637
- --------------------------------------------------------------------------------
Printing and Publishing - 1.5%
Scholastic Corp.* 195,496 $ 7,746,529
- --------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.2%
Kilroy Realty Corp. 44,800 $ 1,027,600
- --------------------------------------------------------------------------------
Restaurants and Lodging - 2.4%
Buffets, Inc.* 275,835 $ 3,085,904
Dave & Buster's, Inc.* 96,400 1,132,700
Four Seasons Hotels, Inc. 39,957 1,798,065
Landry's Seafood Restaurants, Inc.* 127,191 1,081,124
Papa John's International, Inc.* 57,387 2,281,133
Sonic Corp.* 90,386 2,768,071
------------
$ 12,146,997
- --------------------------------------------------------------------------------
Retail - 0.7%
Coldwater Creek, Inc.* 39,200 $ 690,900
Copart Inc.* 126,646 2,770,381
------------
$ 3,461,281
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Special Products and Services - 0.6%
Caliber Learning Network, Inc.* 112,918 $ 352,869
Watsco, Inc. 182,493 2,554,902
------------
$ 2,907,771
- --------------------------------------------------------------------------------
Stores - 2.8%
BJ's Wholesale Club, Inc.* 85,334 $ 2,410,686
CSK Auto Corp.* 131,023 3,111,796
Gymboree Corp.* 183,063 949,639
Micro Warehouse, Inc.* 136,279 1,669,418
Petco Animal Supplies, Inc.* 233,049 2,913,113
Regis Corp. 170,834 3,267,200
------------
$ 14,321,852
- --------------------------------------------------------------------------------
Telecommunications - 7.5%
Advanced Fibre Communications, Inc.* 105,200 $ 1,716,075
Aspect Telecommunications Corp.* 179,671 1,987,610
Intermedia Communications, Inc.* 398,838 10,369,788
International Telecommunication Data
Systems, Inc.* 325,700 2,564,888
Network Solutions, Inc.* 44,500 2,564,313
Nextlink Communications, Inc., "A"* 58,784 2,961,244
Pinnacle Holdings, Inc.* 187,000 4,710,062
Proxim, Inc.* 51,500 2,510,625
RF Micro Devices, Inc.* 57,900 2,543,981
Transaction Network Services, Inc.* 144,905 6,357,707
------------
$ 38,286,293
- --------------------------------------------------------------------------------
Total U.S. Stocks $496,050,688
- --------------------------------------------------------------------------------
Foreign Stocks - 1.2%
United Kingdom - 1.2%
CBT Group PLC, ADR (Computer Software - Personal
Computers)* 282,141 $ 5,924,961
- --------------------------------------------------------------------------------
Total Stocks (Identified Cost, $464,198,966) $501,975,649
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - continued
Other Short-Term Obligations - 18.8%
- --------------------------------------------------------------------------------
ISSUER SHARES
- --------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio
(Identified Cost $95,334,071) $95,334,071 $ 95,334,071
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $559,533,037) $597,309,720
Other Assets, Less Liabilities - (17.7%) (89,645,537)
- --------------------------------------------------------------------------------
Net Assets - 100.0% $507,664,183
- --------------------------------------------------------------------------------
* Non-income producing security.
# Security or a portion of the security was pledged to cover margin requirements
for securities sold short. At the period end, the value of securities pledged
amounted to $1,309,213.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
AUGUST 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $559,533,037) $597,309,720
Cash 51,223
Receivable for Fund shares sold 6,511,979
Receivable for investments sold 4,797,247
Dividends and interest receivable 10,859
Other assets 274
------------
Total assets $608,681,302
------------
Liabilities:
Payable for investments purchased 4,872,170
Collateral for securities loaned, at value 95,334,071
Payable for Fund shares reacquired 439,383
Payable to affiliates -
Management fee 37,307
Distribution and service fee 323,542
Accrued expenses and other liabilities 10,646
------------
Total liabilities $101,017,119
------------
Net assets $507,664,183
============
Net assets consist of:
Paid-in capital $461,516,158
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 37,776,683
Accumulated undistributed net realized gain on
investments and foreign currency transactions 8,371,342
------------
Total $507,664,183
============
Total shares of beneficial interest outstanding 34,937,989
==========
Class A shares:
Net asset value per share
(net assets of $248,709,757 / 17,044,480 shares of
beneficial interest outstanding) $14.59
======
Offering price per share (100 / 94.25 of net asset
value per share) $15.48
======
Class B shares:
Net asset value and offering price per share
(net assets of $174,488,457 / 12,068,311 shares
of beneficial interest outstanding) $14.46
======
Class C shares:
Net asset value and offering price per share
(net assets of $74,493,157 / 5,147,192 shares of
beneficial interest outstanding) $14.47
======
Class I shares:
Net asset value, offering price, and redemption price per
share (net assets of $9,972,812 / 678,006 shares of
beneficial interest outstanding) $14.71
======
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, 1999
- --------------------------------------------------------------------------------
Net investment income (loss):
Income -
Interest $ 846,763
Dividends 326,468
Income on securities loaned 149,472
Foreign taxes withheld (442)
------------
Total investment income $ 1,322,261
------------
Expenses -
Management fee $ 3,152,095
Trustees' compensation 25,034
Shareholder servicing agent fee 370,431
Distribution and service fee (Class A) 547,352
Distribution and service fee (Class B) 1,370,340
Distribution and service fee (Class C) 500,173
Administrative fee 45,869
Custodian fees 133,337
Printing 66,286
Postage 83,828
Auditing fees 30,999
Legal fees 3,738
Miscellaneous 344,202
------------
Total expenses $ 6,673,684
Fees paid indirectly (30,568)
Reduction of expenses by investment adviser (201,472)
------------
Net expenses $ 6,441,644
------------
Net investment loss $ (5,119,383)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 16,348,879
Securities sold short (642,770)
Foreign currency transactions 534
------------
Net realized gain on investments and foreign currency
transactions $ 15,706,643
------------
Change in unrealized appreciation (depreciation) -
Investments $ 80,042,906
Securities sold short (581,230)
------------
Net unrealized gain on investments $ 79,461,676
------------
Net realized and unrealized gain on investments and
foreign currency $ 95,168,319
------------
Increase in net assets from operations $ 90,048,936
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (5,119,383) $ (1,057,836)
Net realized gain on investments and foreign currency
transactions 15,706,643 1,583,465
Net unrealized gain (loss) on investments and foreign
currency 79,461,676 (41,863,394)
------------ ------------
Increase (decrease) in net assets from operations $ 90,048,936 $(41,337,765)
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ -- $ (41,464)
From net investment income (Class I) -- (104,204)
From net realized gain on investments and foreign
currency transactions (Class A) (1,158,786) (70,362)
From net realized gain on investments and foreign
currency transactions (Class B) (1,050,387) --
From net realized gain on investments and foreign
currency transactions (Class C) (311,497) --
From net realized gain on investments and foreign
currency transactions (Class I) (59,727) (176,826)
------------ ------------
Total distributions declared to shareholders $ (2,580,397) $ (392,856)
------------ ------------
Net increase in net assets from Fund share transactions $246,652,515 $213,243,887
------------ ------------
Total increase in net assets $334,121,054 $171,513,266
Net assets:
At beginning of period 173,543,129 2,029,863
------------ ------------
At end of period (including accumulated net investment
loss of $0 and $0, respectively) $507,664,183 $173,543,129
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
- -------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
------------------------ AUGUST 31,
1999 1998 1997*
- -------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.65 $13.07 $10.00
------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.16) $(0.11) $ 0.98
Net realized and unrealized gain (loss)
on investments and foreign currency 4.24 (0.36) 2.09
------ ------ ------
Total from investment operations $ 4.08 $(0.47) $ 3.07
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.72) $ --
From net realized gain on investments
and foreign currency transactions (0.14) (1.23) --
------ ------ ------
Total distributions declared to
shareholders $(0.14) $(1.95) $ --
------ ------ ------
Net asset value - end of period $14.59 $10.65 $13.07
====== ====== ======
Total return(+) 38.44% (4.88)% 30.70%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.51% 1.53% 1.54%+
Net investment income (loss) (1.13)% (0.82)% 12.41%+
Portfolio turnover 104% 196% 887%
Net assets at end of period
(000 omitted) $248,710 $63,740 $ 536
(S) Subject to reimbursement by the Fund, the investment adviser agreed to
maintain the expenses of the Fund, exclusive of management and distribution
and service fees, at not more than 0.25% of average daily net assets,
effective November 1, 1997. Prior to November 1, 1997, subject to
reimbursement by the Fund, the investment adviser agreed to maintain the
expenses of the Fund at not more than 1.50% of the Fund's average daily net
assets, and the investment adviser, distributor, and shareholder servicing
agent did not impose any of their fees. To the extent actual expenses were
over this limitation and the waivers had not been in place for the periods
indicated, the net investment income (loss) per share and the ratios would
have been:
Net investment income (loss) $(0.17) $(0.12) $ 0.89
Ratios (to average net assets):
Expenses## 1.57% 1.63% 3.10%+
Net investment income (loss) (1.19)% (0.92)% 10.81%+
* 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 has an expense offset arrangement which reduces the Fund's
custodian fees based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent. The Fund's expenses are calculated
without reduction for this expense offset arrangement.
(+) 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.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- ------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 1999 AUGUST 31, 1998*
- ------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.60 $11.80
------ ------
Income from investment operations# -
Net investment loss(S) $(0.24) $(0.17)
Net realized and unrealized gain (loss)
on investments and foreign currency 4.21 (1.03)
------ ------
Total from investment operations $ 3.97 $(1.20)
------ ------
Less distributions declared to
shareholders -
From net investment income $ -- $ --
From net realized gain on investments
and foreign currency transactions (0.11) --
------ ------
Total distributions declared to
shareholders $(0.11) $ --
------ ------
Net asset value - end of period $14.46 $10.60
====== ======
Total return 37.56% (10.17)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.16% 2.18%+
Net investment loss (1.76)% (1.49)%+
Portfolio turnover 104% 196%
Net assets at end of period (000
omitted) $174,488 $82,032
(S) Subject to reimbursement by the Fund, the investment adviser agreed to
maintain the expenses of the Fund, exclusive of management and distribution
and service fees, at not more than 0.25% 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 $(0.25) $(0.18)
Ratios (to average net assets):
Expenses## 2.22% 2.28%+
Net investment loss (1.82)% (1.59)%+
* For the period from the inception of Class B, November 3, 1997, through
August 31, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's
custodian fees based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent. The Fund's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- -------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 1999 AUGUST 31, 1998*
- -------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.61 $11.80
------ ------
Income from investment operations# -
Net investment loss(S) $(0.24) $(0.17)
Net realized and unrealized gain
(loss) on investments and foreign
currency 4.21 (1.02)
------ ------
Total from investment operations $ 3.97 $(1.19)
------ ------
Less distributions declared to
shareholders -
From net investment income $ -- $ --
From net realized gain on
investments and foreign currency
transactions (0.11) --
------ ------
Total distributions declared to
shareholders $(0.11) $ --
------ ------
Net asset value - end of period $14.47 $10.61
====== ======
Total return 37.53% (10.08)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.16% 2.18%+
Net investment loss (1.78)% (1.51)%+
Portfolio turnover 104% 196%
Net assets at end of period (000 omitted) $74,493 $24,450
(S) Subject to reimbursement by the Fund, the investment adviser agreed to
maintain the expenses of the Fund, exclusive of management and distribution
and service fees, at not more than 0.25% 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 $(0.25) $(0.17)
Ratios (to average net assets):
Expenses## 2.22% 2.28%+
Net investment loss (1.84)% (1.61)%+
* For the period from the inception of Class C, November 3, 1997, through
August 31, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's
custodian fees based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent. The Fund's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- ------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
------------------------ AUGUST 31,
1999 1998 1997*
- -------------------------------------------------------------------------------
CLASS I
- -------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.70 $13.08 $10.00
------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.11) $(0.03) $ 1.01
Net realized and unrealized gain (loss)
on investments and foreign currency 4.27 (0.40) 2.07
------ ------ ------
Total from investment operations $ 4.16 $(0.43) $ 3.08
------ ------ ------
Less distributions declared to
shareholders -
From net investment income $ -- $(0.72) $ --
From net realized gain on investments
and foreign currency transactions (0.15) (1.23) --
------ ------ ------
Total distributions declared
to shareholders $(0.15) $(1.95) $ --
------ ------ ------
Net asset value - end of period $14.71 $10.70 $13.08
====== ====== ======
Total return 39.06% (4.50)% 30.80%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.16% 1.18% 1.54%+
Net investment income (loss) (0.77)% (0.21)% 12.65%+
Portfolio turnover 104% 196% 887%
Net assets at end of period
(000 omitted) $9,973 $3,321 $1,494
(S) Subject to reimbursement by the Fund, the investment adviser agreed to
maintain the expenses of the Fund, exclusive of management fees, at not more
than 0.25% of average daily net assets, effective November 1, 1997. Prior to
November 1, 1997, subject to reimbursement by the Fund, the investment
adviser agreed to maintain the expenses of the Fund at not more than 1.50%
of the Fund's average daily net assets, and the investment adviser and
shareholder servicing agent did not impose any of their fees. To the extent
actual expenses were over this limitation and the waivers had not been in
place for the periods indicated, the net investment income (loss) per share
and the ratios would have been:
Net investment income (loss) $(0.12) $(0.03) $ 0.92
Ratios (to average net assets):
Expenses## 1.22% 1.28% 2.52%+
Net investment income (loss) (0.83)% (0.31)% 11.63%+
* 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 has an expense offset arrangement which reduces the Fund's
custodian fees based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent. The Fund's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS New Discovery Fund is a diversified series of MFS Series Trust I. 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 Valuation - 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 in good faith by
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.
Security Loans - State Street Bank and Trust Company ("State Street"), as
agent, may loan the securities of the Fund to certain brokers (the
"Borrowers") approved by the Fund. The loans are collateralized at all times
by cash and/or U.S. Treasury securities in an amount at least equal to the
market value of the securities loaned. State Street provides the Fund with
indemnification against Borrower default. The Fund bears the risk of loss with
respect to the investment of cash collateral.
At August 31, 1999, the value of securities loaned was $91,101,465. These
loans were collateralized by cash of $95,334,071 and U.S. Treasury securities
of $254,503. Cash collateral is invested in short-term securities, which are
included in the Portfolio of Investments. A portion of the income generated
upon investment of the collateral is remitted to the Borrowers, and the
remainder is allocated between the Fund and State Street in its capacity as
lending agent. On loans collateralized by U.S. Treasury securities, a fee is
received from the Borrower, and is allocated between the Fund and State
Street. The dividend and interest income earned on the securities loaned is
accounted for in the same manner as other dividend and interest income.
Short Sales - The Fund may enter into short sales. A short sale transaction
involves selling a security which the Fund does not own with the intent of
purchasing it later at a lower price. The Fund will realize a gain if the
security price decreases and a loss if the security price increases between
the date of the short sale and the date on which the Fund must replace the
borrowed security. Losses can exceed the proceeds from short sales and can be
greater than losses from the actual purchase of a security. The amount of any
gain will be decreased, and the amount of any loss increased, by the amount of
the premium, dividends, or interest the Fund may be required to pay in
connection with a short sale. Whenever the Fund engages in short sales, its
custodian segregates cash or marketable securities in an amount that, when
combined with the amount of proceeds from the short sale deposited with the
broker, at least equals the current market value of the security sold short.
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.
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 distributions from paid-in
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, 1999, $5,119,383 and $2,360 were reclassified
to accumulated net investment loss and paid-in capital, respectively, from
accumulated undistributed net realized gain on investments and foreign
currency transactions due to differences between book and tax accounting for
currency transactions and net investment losses. 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 daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. 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 0.90%
of the Fund's 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 0.25% of average daily net assets. To the extent that the expense
reimbursement fee exceeds the Fund's actual expenses, the excess will be
applied to amounts paid by MFS in prior years. At August 31, 1999, the
aggregate unreimbursed expenses paid by MFS amounted to $291,805.
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. The
Trustees are currently not receiving any payments for their services to the
Fund.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee at
the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$291,811 for the year ended August 31, 1999, 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 $9,709 for
the year ended August 31, 1999. Fees incurred under the distribution plan
during the year ended August 31, 1999, were 0.35% 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 $98 and $32 for Class B
and Class C shares, respectively, for the year ended August 31, 1999. Fees
incurred under the distribution plan during the year ended August 31, 1999,
were 1.00% of average daily net assets attributable to Class B and Class C
shares, on an annualized basis.
Purchases over $1 million of Class A shares and certain purchases by
retirement plans are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class C shares in the even of a shareholder redemption within
12 months of purchase MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended August 31,
1999, were $9,103, $380,334, and $42,550 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 annual rate of
0.10%. Prior to April 1, 1999, the fee was calculated as a percentage of the
Fund's average daily net assets at an annual rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities and
short-term obligations, aggregated $602,511,711 and $348,978,602,
respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $566,762,369
------------
Gross unrealized appreciation $ 72,545,175
Gross unrealized depreciation (41,997,824)
------------
Net unrealized appreciation $ 30,547,351
============
(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. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
----------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 21,929,599 $ 298,839,798 6,522,857 $ 86,204,526
Shares issued to shareholders in
reinvestment of distributions 83,708 1,083,406 9,647 112,487
Shares reacquired (10,951,616) (153,369,534) (590,723) (7,830,314)
----------- ------------- ---------- -------------
Net increase 11,061,691 $ 146,553,670 5,941,781 $ 78,486,699
=========== ============= ========== =============
<CAPTION>
Class B Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
----------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 7,912,588 $ 104,420,557 8,309,021 $ 108,983,495
Shares issued to shareholders in
reinvestment of distributions 72,888 939,522 -- --
Shares reacquired (3,659,525) (48,606,010) (566,661) (7,267,880)
----------- ------------- ---------- -------------
Net increase 4,325,951 $ 56,754,069 7,742,360 $ 101,715,615
=========== ============= ========== =============
<CAPTION>
Class C Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
----------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,058,416 $ 54,988,585 2,453,434 $ 32,412,325
Shares issued to shareholders in
reinvestment of distributions 17,675 228,190 -- --
Shares reacquired (1,234,357) (16,797,230) (147,976) (1,922,241)
----------- ------------- ---------- -------------
Net increase 2,841,734 $ 38,419,545 2,305,458 $ 30,490,084
=========== ============= ========== =============
<CAPTION>
Class I Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
----------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 475,891 $ 6,403,650 216,000 $ 2,875,329
Shares issued to shareholders in
reinvestment of distributions 4,587 59,727 24,101 281,020
Shares reacquired (112,721) (1,538,146) (44,090) (604,860)
----------- ------------- ---------- -------------
Net increase 367,757 $ 4,925,231 196,011 $ 2,551,489
=========== ============= ========== =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $820 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, 1999, was $2,715.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust I and Shareholders of
MFS New Discovery Fund:
We have audited the accompanying statement of assets and liabilities of MFS
New Discovery Fund (the Fund), including the schedule of portfolio
investments, as of August 31, 1999, 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 four years in the period then ended, and for the period from January 2,
1997 (commencement of operations) to August 31, 1997. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at August 31, 1999, 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
New Discovery Fund at August 31, 1999, 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, 1997
(commencement of operations) to August 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 9, 1999
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 2000, SHAREHOLDERS WILL BE MAILED A FORM 1099-DIV REPORTING
THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR
YEAR 1999.
THE FUND HAS DESIGNATED $47,793 AS A CAPITAL GAIN DIVIDEND FOR THE YEAR
ENDED AUGUST 31, 1999.
FOR THE YEAR ENDED AUGUST 31, 1999, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 2.52%.
- --------------------------------------------------------------------------------
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and on behalf of the MFS
funds, is committed to the effective use of technology in managing our portfolio
investments, delivering high-quality service to MFS fund shareholders,
retirement plan participants, and MFS' institutional clients, and supporting the
financial consultants who sell our products. With that in mind, we created a
separately funded Year 2000 Program Management Office in 1996 comprised of a
specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers
and software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking
steps to ascertain the Y2K readiness of MFS' internal systems and is working
with our external systems vendors to determine whether they expect their
systems to be ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness. Each year, MFS' research analysts and portfolio managers
conduct more than 1,000 on-site meetings with companies whose securities are,
or may be, held in fund and client portfolios, and host an additional 1,500
meetings at MFS' headquarters. When assessing the Y2K readiness of these
companies, MFS' research analysts and portfolio managers may rely upon
discussions at these meetings as well as SEC disclosure documents and third-
party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While
MFS is taking significant steps to protect the integrity of its internal
systems, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on MFS, shareholders of MFS funds, participants in
retirement plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program,
please visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston
Street, Boston, MA 02116-3741.
<PAGE>
MFS(R) NEW DISCOVERY FUND
<TABLE>
<S> <C>
TRUSTEES ASSISTANT TREASURERS
Mark E. Bradley*
Richard B. Bailey* - Private Investor; Former Ellen Moynihan*
Chairman and Director (until 1991), MFS Investment James O. Yost*
Management
SECRETARY
Marshall N. Cohan - Private Investor Stephen E. Cavan*
Lawrence H. Cohn, M.D. - Chief of Cardiac Surgery, ASSISTANT SECRETARY
Brigham and Women's Hospital; Professor of James R. Bordewick, Jr.*
Surgery, Harvard Medical School
CUSTODIAN
The Hon. Sir J. David Gibbons, KBE - Chief State Street Bank and Trust Company
Executive Officer, Edmund Gibbons Ltd.; Chairman,
Colonial Insurance Company, Ltd. AUDITORS
Ernst & Young LLP
Abby M. O'Neill - Private Investor
INVESTOR INFORMATION
Walter E. Robb, III - President and Treasurer, For MFS stock and bond market outlooks, call toll
Benchmark Advisors, Inc.; President, Benchmark free: 1-800-637-4458 anytime from a touch-tone
Consulting Group, Inc. telephone.
Arnold D. Scott* - Senior Executive For information on MFS mutual funds, call your
Vice President, Director, and Secretary, financial consultant or, for an information kit,
MFS Investment Management call toll free: 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time (or leave a
Jeffrey L. Shames* - Chairman, Chief message anytime).
Executive Officer, and Director,
MFS Investment Management INVESTOR SERVICE
MFS Service Center, Inc.
J. Dale Sherratt - President, Insight P.O. Box 2281
Resources, Inc.; Managing General Partner, Boston, MA 02107-9906
Wellfleet Investments; Chief Executive
Officer, Cambridge Nutraceuticals For general information, call toll free:
1-800-225-2606 any business day from
Ward Smith - Former Chairman (until 1994), NACCO 8 a.m. to 8 p.m. Eastern time.
Industries (holding company)
For service to speech- or hearing-impaired, call
INVESTMENT ADVISER toll free: 1-800-637-6576 any business day from 9
Massachusetts Financial Services Company a.m. to 5 p.m. Eastern time. (To use this service,
500 Boylston Street your phone must be equipped with a
Boston, MA 02116-3741 Telecommunications Device for the Deaf.)
DISTRIBUTOR For share prices, account balances, and exchanges,
MFS Fund Distributors, Inc. call toll free: 1-800-MFS-TALK (1-800-637-8255)
500 Boylston Street anytime from a touch-tone telephone.
Boston, MA 02116-3741
WORLD WIDE WEB
CHAIRMAN AND PRESIDENT www.mfs.com
Jeffrey L. Shames*
PORTFOLIO MANAGER
Brian E. Stack*
TREASURER
W. Thomas London*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
------------
MFS(R) NEW DISCOVERY 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)1999 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MND-2 10/99 67.5M 97/297/397/897
