<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
MFS(R) STRATEGIC
GROWTH FUND
SEMIANNUAL REPORT o FEBRUARY 28, 1999
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 15
Notes to Financial Statements ............................................. 22
MFS' Year 2000 Readiness Disclosure ....................................... 28
Trustees and Officers ..................................................... 29
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKS THE 75TH ANNIVERSARY OF MFS' INVENTION OF
THE MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER
OF INVESTING TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR
COLLEGE DEGREES, HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL
FUNDS. WE COULDN'T. AND WHILE THE MFS 75 YEARS
YEARS AHEAD WILL BRING A NUMBER OF [graphic omitted]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE EXPERIENCE THE FUTURE(SM)
WILL HELP GUIDE A NEW GENERATION OF
INVESTORS INTO THE FUTURE.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
Since we launched Massachusetts Investors Trust, the nation's first mutual
fund, 75 years ago, MFS has weathered numerous market and economic cycles,
from the occasional recession to long periods of growth and prosperity.
Throughout that time, we have tried to give investors a realistic assessment
of the investment markets and, when necessary, to sound a note of caution --
even when market conditions appear quite favorable.
Although the equity markets have overcome last year's volatility, we still
think stocks are overdue for a correction that will rid them of the excesses
that have developed. Perhaps the most glaring measure of those excesses is the
high level of valuations, that is, the amount equity investors are paying for
each dollar of earnings. By mid-March, the price-to-earnings (P/E) ratio of
the average stock in the Standard & Poor's 500 Composite Index, a popular,
unmanaged index of common stock total return performance, was almost 28%
higher than it was a year ago. While P/E ratios keep going up, earnings have
essentially been flat, and we believe they are likely to stay that way, for a
few months at least. This leaves stock prices vulnerable to negative events
such as a domestic or international crisis, a sudden increase in interest
rates, or a slowing economy, any of which could lead to lower corporate
earnings.
While risks in the overall market have increased, one industry calls for
particular attention. For several months, Internet-related stocks have
exhibited extreme price volatility. The Internet's potential impact on the way
individuals and companies communicate and conduct business is certainly great,
but we feel that most of the recent run-up in the share prices of these
companies is unjustified. Many of them have not yet reported any profits, and
there is no way of knowing which of today's "hot" Internet stocks will be
successful -- or even in existence -- a few years from now. Therefore, we
think the frenzy surrounding even the best-known Internet stocks is purely
speculative.
However, there are some established companies offering Internet-related products
and services that may generate revenue. These include companies that provide
networking equipment, that make servers to store information, and that help
customers make better use of Internet services. Because they already have
profitable businesses as well as the potential to use the Internet to increase
their opportunities to generate revenue, these companies have been the focus of
our research efforts.
Although we think valuations for the overall equity market, and especially for
Internet stocks, are excessive, we see this situation as an opportunity for
our portfolio managers to capitalize on MFS(R) Original Research(SM). This is
a fundamental, company-by-company process that helps us find investments that
we believe are most likely to achieve long-term earnings growth, through both
negative and positive market cycles.
We also rely heavily on our research process when investing in the fixed-
income markets. Last year, turmoil in emerging markets and volatility in the
U.S. stock market helped create a "flight to quality," meaning that investors
moved toward U.S. Treasury securities, which are seen as carrying less risk,
and away from almost everything else. As a result, yields on non-Treasury
securities increased, while yields on Treasuries fell. Some of these yield
spreads, or differentials, have narrowed, but they have not returned to the
levels seen before last year's market turmoil. We think this has created
opportunities for our portfolio managers to find attractive yields in
these markets.
Individual investors, meanwhile, should keep in mind that the tremendous
increases in the broad stock market averages of the past several years
are a historical aberration and do not necessarily indicate future market
performance. If they are not already diversified across a range of
investments, including growth stock funds, value-oriented funds, and fixed-
income funds, investors may want to talk to their financial advisers about
developing well-diversified portfolios with the potential to weather
unexpected changes in the markets. Doing so may help investors more
effectively meet their long-term financial goals. 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)
March 16, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
For the six months ended February 28, 1999, Class A shares of the Fund
provided a total return of 43.44%, Class B shares 43.03%, Class C shares
42.97%, and Class I shares 43.82%. These returns, which include the
reinvestment of distributions but exclude the effects of any sales charges,
compare to a 30.18% return for the Standard & Poor's 500 Composite Index (the
S&P 500) for the same period. The S&P 500 is a popular, unmanaged index of
common stock total return performance. The average growth fund returned 29.91%
for the period as reported by Lipper Analytical Services, Inc., an independent
firm that tracks mutual fund performance.
Q. ON FEBRUARY 24, 1999, YOU BECAME PORTFOLIO MANAGERS OF THE FUND. DO YOU
ANTICIPATE CHANGES IN THE WAY THE FUND IS MANAGED OR IN PORTFOLIO HOLDINGS?
A. Any changes are likely to be evolutionary. Our investment styles are
compatible with the Fund's aggressive growth objective, and we follow the
same principles as the previous manager. So shareholders can expect a
strong degree of consistency in the way the Fund is managed and in the
types of stocks we select. Of the more than 100 stocks in the portfolio,
every single one is covered by one of our research analysts and has been
top rated by MFS. Our analysts are experts on these companies and have been
closely involved in the portfolio's ownership of them. This speaks to the
strength and depth of MFS(R) Original Research(SM), the process by which we
select stocks based on firsthand analysis of the myriad factors that can
affect a company's financial performance. We rely on our deep pool of
talented analysts to achieve consistency and stability.
Q. WHAT DO YOU LOOK FOR IN A STOCK?
A. We invest in what we view as well-run businesses with strong cash flows that
are poised for growth. We also search for companies with leading positions in
growing industries. These companies generally have value-added products or
services that can result in potentially high profit margins, such as
protection from competitors. Strong management is also important because
management teams must have, and be able to successfully execute, their
vision. Finally, we look for catalysts that may accelerate earnings growth.
The introduction of new or enhanced products that can boost a company's
earnings stream, domestic or global market expansion, and acquisitions that
enhance market position, revenue, or cost savings are examples of catalysts.
Q. IN WHAT SECTORS ARE YOU FINDING THE MOST ATTRACTIVE INVESTMENTS AND WHY?
A. Our top sectors are technology, financial services, and retailing. We
remain very positive about the long-term global importance of technology in
boosting productivity. We favor technology companies with products that are
differentiated by their intellectual capital, which we believe determines a
company's ability to succeed consistently over a long period. We are
focusing here on select, well-established companies that we feel will lead
the industry in the future. In financial services, we particularly like
well-known investment banking and brokerage stocks. Top franchises in the
industry may be able to leverage strong demand for investment banking,
investment management, and initial public stock-offering services driven by
the health of the economy and the stock market. In retailing, we're
investing in leading chain stores that have been able to exploit strong
consumer confidence. At the same time, we're looking for retail companies
that are acquiring and consolidating competitors. Consolidation often
enables companies to reduce costs, boost revenues, limit competition, and
reach new markets.
Q. WHAT ARE SOME OF THE MORE INTERESTING STORIES BEHIND STOCKS THAT CONTRIBUTED
TO THE FUND'S PERFORMANCE?
A. Microsoft has been one of the best stories in our portfolio in addition to
being one of our oldest holdings. The company is a dominating presence in
the worldwide software market, and it routinely reinvests in its business
to maintain its leadership position. Microsoft has reported staggering
financial returns over the past several quarters: more than 20% revenue
growth, greater than 40% operating margins, billions in cash, and no debt.
Compuware has been another positive investment. The company provides
products and services to help customers manage corporate data. This is a
critical area because the growing use of technology means that corporations
must effectively manage enormous amounts of data. In retailing, our best
story has come from Wal-Mart. The company has boosted revenue and earnings
through international expansion. At the same time, sales figures for
existing stores and gross profit margins have been increasing.
Q. WHAT ABOUT SOME STOCKS THAT DISAPPOINTED DURING THE PERIOD?
A. Even with the Fund's strong performance, it is rare for a period to pass
without a disappointment or two. The major disappointment during this
period came from Franklin Resources, a mutual fund company. The stock
suffered because Franklin's funds, which are largely focused on fixed-
income and international investments, underperformed during the period.
This impacted their assets under management and, subsequently, their
earnings. We reversed our position in the company, and are closely
monitoring Franklin's situation.
Q. IN YOUR OPINION, WHAT ARE SOME OF THE CRITICAL FACTORS THAT WILL IMPACT
GROWTH STOCK INVESTING AND THE FUND IN THE FIRST HALF OF 1999?
A. We think the single biggest factor will be the market's high valuations.
When highly valued companies disappoint Wall Street for any reason, their
share prices are punished badly. Though the Fund invests in fast-growing
companies that generally command higher valuations than slow-growing
companies, we must be convinced by research that our holdings can support
their valuations with continued strong earnings. We believe that our
research-intensive approach will continue to help us find companies poised
for growth and will assist us in assembling a diverse portfolio that can
respond well under a variety of economic conditions.
/s/ S. Irfan Ali /s/ Stephen Pesek
S. Irfan Ali Stephen Pesek
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are only through the end of the period of the report as stated on the cover.
The managers' views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS' PROFILES
- --------------------------------------------------------------------------------
S. IRFAN ALI IS VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R). HE IS A
PORTFOLIO MANAGER OF MFS(R) STRATEGIC GROWTH FUND AND MFS(R)
INSTITUTIONAL LARGE CAP GROWTH FUND. HE JOINED MFS AS A RESEARCH ANALYST
IN 1993 AFTER GRADUATING FROM HARVARD BUSINESS SCHOOL WITH AN M.B.A.
DEGREE AND WAS NAMED ASSISTANT VICE PRESIDENT IN 1996, VICE PRESIDENT IN
1997, AND PORTFOLIO MANAGER IN 1997. HE COMPLETED HIS BACHELOR'S DEGREE
AT HARVARD IN 1989 AND WORKED AS A CORPORATE FINANCE ANALYST WITH FIRST
BOSTON CORP. BEFORE GOING TO BUSINESS SCHOOL.
STEPHEN PESEK IS VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R) AND
PORTFOLIO MANAGER OF MASSACHUSETTS INVESTORS GROWTH STOCK FUND AND THE
MASSACHUSETTS INVESTORS GROWTH STOCK SERIES OFFERED THROUGH MFS(R)/SUN
LIFE ANNUITY PRODUCTS. HE IS ALSO A PORTFOLIO MANAGER OF MFS(R)
INSTITUTIONAL LARGE CAP GROWTH FUND, MFS(R) STRATEGIC GROWTH FUND, AND
MFS(R) EMERGING GROWTH SERIES (PART OF MFS(R) VARIABLE INSURANCE TRUST
(SM)). MR. PESEK JOINED MFS IN 1994 AS A RESEARCH ANALYST FOLLOWING THE
PHARMACEUTICAL, BIOTECHNOLOGY, AND ELECTRONICS INDUSTRIES. HE BECAME A
PORTFOLIO MANAGER IN 1996. PRIOR TO JOINING MFS, HE WORKED FOR SEVEN
YEARS AT A MAJOR INVESTMENT MANAGEMENT FIRM AS AN EQUITY ANALYST. HE IS
A GRADUATE OF THE UNIVERSITY OF PENNSYLVANIA AND HAS A MASTER OF
BUSINESS ADMINISTRATION DEGREE FROM COLUMBIA UNIVERSITY. HE IS A
CHARTERED FINANCIAL ANALYST.
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(R)
ORIGINAL RESEARCH(SM), A COMPANY-ORIENTED, BOTTOM-UP PROCESS OF
SELECTING SECURITIES.
- --------------------------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
- --------------------------------------------------------------------------------
FUND FACTS
- --------------------------------------------------------------------------------
OBJECTIVE: SEEKS CAPITAL APPRECIATION.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 2, 1996
CLASS INCEPTION: CLASS A JANUARY 2, 1996
CLASS B APRIL 11, 1997
CLASS C APRIL 11, 1997
CLASS I JANUARY 2, 1997
SIZE: $977.3 MILLION NET ASSETS AS OF FEBRUARY 28, 1999
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH
FEBRUARY 28, 1999
CLASS A
6 Months 1 Year 3 Years 10 Years/Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +43.44% +30.21% +173.46% +217.52%
- --------------------------------------------------------------------------------
Average Annual Total Return -- +30.21% + 39.84% + 44.16%
- --------------------------------------------------------------------------------
SEC Results -- +22.72% + 37.11% + 41.48%
- --------------------------------------------------------------------------------
CLASS B
6 Months 1 Year 3 Years 10 Years/Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +43.03% +29.27% +169.72% +213.23%
- --------------------------------------------------------------------------------
Average Annual Total Return -- +29.27% + 39.20% + 43.54%
- --------------------------------------------------------------------------------
SEC Results -- +25.27% + 38.69% + 43.10%
- --------------------------------------------------------------------------------
CLASS C
6 Months 1 Year 3 Years 10 Years/Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +42.97% +29.31% +170.19% +213.71%
- --------------------------------------------------------------------------------
Average Annual Total Return -- +29.31% + 39.28% + 43.61%
- --------------------------------------------------------------------------------
SEC Results -- +28.31% + 39.28% + 43.61%
- --------------------------------------------------------------------------------
CLASS I
6 Months 1 Year 3 Years 10 Years/Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +43.82% +30.66% +175.17% +219.48%
- --------------------------------------------------------------------------------
Average Annual Total Return -- +30.66% + 40.13% + 44.44%
- --------------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations,
January 2, 1996, through February 28, 1999.
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 5.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C shares
("C") have no initial sales charge but, like B, have higher annual fees and
expenses than A. C SEC results reflect the 1% CDSC applicable to shares
redeemed within 12 months. Class I shares ("I") have no sales charge or Rule
12b-1 fees and are only available to certain institutional investors.
B and C results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of B and C. Because
operating expenses of B and C are higher than those of A, B and C performance
generally would have been lower than A performance. The A performance included
in the B and C SEC performance has been adjusted to reflect the CDSC generally
applicable to B and C rather than the initial sales charge generally
applicable to A.
I results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of I. Because operating
expenses of A are greater than those of I, I performance generally would have
been higher than A performance. The A performance included in the I
performance has been adjusted to reflect the fact that I have no initial sales
charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and capital
gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1999
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 28.8%
FINANCIAL SERVICES 16.5%
RETAILING 15.0%
LEISURE 13.7%
CONGLOMERATES, SPECIAL PRODUCTS/SERVICES 6.4%
TOP 10 STOCK HOLDINGS
MICROSOFT CORP. 8.2% CVS CORP. 3.6%
Computer software and systems company Drug store chain
ORACLE CORP. 5.0% ASSOCIATES FIRST CAPITAL CORP. 3.6%
Database software developer and Diversified financial services
manufacturer company
BMC SOFTWARE, INC. 4.0% MEDIAONE GROUP, INC. 3.6%
Computer software company Broadcasting and cable TV company
WAL-MART STORES, INC. 3.9% MORGAN STANLEY DEAN WITTER & CO. 3.2%
Discount retail store chain Investment services company
TYCO INTERNATIONAL LTD. 3.8% COMPUTER ASSOCIATES INTERNATIONAL,
Security systems, packaging, and INC. 2.1%
electronic equipment conglomerate Computer software company
The portfolio is actively managed, and holdings are subject to change.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- February 28, 1999
<TABLE>
<CAPTION>
STOCKS - 95.3%
- ------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 92.4%
Advertising - 0.1%
Young & Rubicam, Inc.* 23,300 $ 879,575
- --------------------------------------------------------------------------------------------------------
Aerospace - 3.4%
Gulfstream Aerospace Corp.* 318,600 $ 14,257,350
United Technologies Corp. 152,864 18,936,028
------------
$ 33,193,378
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 3.8%
Amsouth Bancorp 275,000 $ 12,925,000
Bankers Trust Corp. 96,200 8,369,400
Fleet Financial Group, Inc. 55,858 2,398,403
Mellon Bank Corp. 30,400 2,055,800
State Street Corp. 63,543 4,872,954
US Bancorp 36,200 1,169,712
Wells Fargo Co. 145,651 5,352,674
------------
$ 37,143,943
- --------------------------------------------------------------------------------------------------------
Business Machines - 1.9%
Affiliated Computer Services, Inc., "A"* 285,726 $ 13,214,828
Sun Microsystems, Inc.* 52,673 5,125,741
------------
$ 18,340,569
- --------------------------------------------------------------------------------------------------------
Business Services - 1.9%
Ceridian Corp.* 27,381 $ 1,961,164
Computer Sciences Corp. 30,000 1,998,750
DST Systems, Inc.* 165,462 8,976,313
First Data Corp. 76,600 2,929,950
Fiserv, Inc.* 36,969 1,737,543
Modis Professional Services, Inc.* 44,810 613,337
------------
$ 18,217,057
- --------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 8.1%
America Online, Inc.* 1,600 $ 142,300
Autodesk, Inc. 62,700 2,515,837
Microsoft Corp.* 509,800 76,533,725
------------
$ 79,191,862
- --------------------------------------------------------------------------------------------------------
Computer Software - Services - 0.2%
EMC Corp.* 19,700 $ 2,016,788
- --------------------------------------------------------------------------------------------------------
Computer Software - Systems - 13.3%
BMC Software, Inc.* 920,562 $ 37,627,972
Cadence Design Systems, Inc.* 353,840 8,514,275
Computer Associates International, Inc. 470,000 19,740,000
Compuware Corp.* 197,726 11,060,298
Network Associates, Inc.* 52,700 2,476,900
Oracle Corp.* 836,567 46,743,181
SunGard Data Systems, Inc.* 90,300 3,578,137
------------
$129,740,763
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 4.3%
Clorox Co. 20,550 $ 2,431,322
Dial Corp. 57,891 1,689,694
Galileo International, Inc. 37,200 1,878,600
Service Corp. International 36,900 567,337
Tyco International Ltd. 472,602 35,179,311
------------
$ 41,746,264
- --------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.2%
Emerson Electric Co. 34,900 $ 2,004,569
- --------------------------------------------------------------------------------------------------------
Electronics - 2.0%
Altera Corp.* 64,385 $ 3,130,721
AMP, Inc. 92,248 4,906,440
Intel Corp. 95,485 11,452,232
------------
$ 19,489,393
- --------------------------------------------------------------------------------------------------------
Entertainment - 10.1%
CBS Corp.* 355,388 $ 13,104,932
Citadel Communications Corp.* 58,500 1,330,875
Cox Radio, Inc., "A"* 24,697 1,089,755
Disney (Walt) Co. 7,500 263,906
Entercom Communications Corp.* 2,900 90,988
Fox Entertainment Group, Inc.* 14,900 387,400
Gemstar International Group Ltd.* 10,900 697,600
Harrah's Entertainment, Inc.* 269,105 4,490,690
Jacor Communications, Inc.* 278,808 19,446,858
MediaOne Group, Inc.* 616,900 33,621,050
Mirage Resorts, Inc.* 230,972 4,503,954
Time Warner, Inc. 255,872 16,503,744
Univision Communications, Inc., "A"* 80,630 3,285,673
------------
$ 98,817,425
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 10.9%
American Express Co. 72,232 $ 7,837,172
Associates First Capital Corp., "A" 828,952 33,676,175
CIT Group, Inc., "A" 12,435 366,833
Federal Home Loan Mortgage Corp. 93,400 5,498,925
Federal National Mortgage Assn 183,524 12,846,680
Federated Investors, Inc., "A" 51,400 986,238
Franklin Resources, Inc. 142,811 4,543,175
Merrill Lynch & Co., Inc. 138,334 10,617,134
Morgan Stanley Dean Witter & Co. 330,475 29,907,987
------------
$106,280,319
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.6%
Anheuser-Busch Cos., Inc. 70,700 $ 5,421,806
- --------------------------------------------------------------------------------------------------------
Insurance - 1.0%
Allstate Corp. 120,000 $ 4,500,000
American International Group, Inc. 8,075 920,045
Hartford Financial Services Group, Inc. 22,200 1,200,188
Lincoln National Corp. 36,690 3,474,084
------------
$ 10,094,317
- --------------------------------------------------------------------------------------------------------
Manufacturing - 0.2%
Illinois Tool Works, Inc. 29,700 $ 2,041,875
- --------------------------------------------------------------------------------------------------------
Medical and Health Products - 3.2%
Abbott Laboratories, Inc. 38,000 $ 1,764,625
American Home Products Corp. 79,468 4,728,346
Boston Scientific Corp.* 22,200 588,300
Bristol-Myers Squibb Co. 39,836 5,016,846
Pfizer, Inc. 41,700 5,501,794
Schering Plough Corp. 216,110 12,088,653
Warner-Lambert Co. 25,500 1,761,094
------------
$ 31,449,658
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 2.1%
Health Management Associates, Inc., "A"* 317,686 $ 4,110,063
HealthSouth Corp.* 600,859 6,984,986
Lincare Holdings, Inc.* 9,600 342,000
United Healthcare Corp. 185,047 9,125,130
------------
$ 20,562,179
- --------------------------------------------------------------------------------------------------------
Oils - 0.4%
Exxon Corp. 42,774 $ 2,847,144
Mobil Corp. 18,600 1,547,288
------------
$ 4,394,432
- --------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.5%
Gannett Co., Inc. 77,433 $ 4,916,996
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 2.2%
Cendant Corp.* 206,066 $ 3,412,968
Marriott International, Inc., "A" 30,000 1,080,000
McDonald's Corp. 36,923 3,138,455
Promus Hotel Corp.* 384,221 13,519,777
------------
$ 21,151,200
- --------------------------------------------------------------------------------------------------------
Stores - 10.9%
CVS Corp. 640,896 $ 33,967,488
Home Depot, Inc. 107,648 6,425,240
Office Depot, Inc.* 259,454 9,259,265
Rite Aid Corp. 459,862 19,026,790
TJX Cos., Inc. 63,500 1,813,719
Wal-Mart Stores, Inc. 423,276 36,560,464
------------
$107,052,966
- --------------------------------------------------------------------------------------------------------
Supermarkets - 3.4%
Kroger Co.* 5,300 $ 342,844
Meyer (Fred), Inc.* 256,864 16,503,512
Safeway, Inc.* 290,400 16,770,600
------------
$ 33,616,956
- --------------------------------------------------------------------------------------------------------
Telecommunications - 7.7%
3Com Corp.* 164,400 $ 5,168,325
AirTouch Communications, Inc.* 208,468 18,983,617
Alltel Corp. 25,300 1,514,837
Cellular Communications International, Inc.* 6,600 518,513
Century Telephone Enterprises, Inc. 44,800 2,766,400
Cisco Systems, Inc.* 100,912 9,870,455
Lucent Technologies, Inc. 73,147 7,428,992
MCI WorldCom, Inc.* 214,524 17,698,230
NTL, Inc.* 86,000 6,681,125
Sprint Corp. (PCS Group)* 63,300 2,025,600
Tellabs, Inc.* 29,100 2,329,819
------------
$ 74,985,913
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $902,750,203
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 2.9%
Germany - 0.8%
Mannesmann AG (Conglomerate) 58,500 $ 7,886,461
- --------------------------------------------------------------------------------------------------------
Netherlands - 0.1%
Equant N.V., (Computer Software - Services)* 18,700 $ 1,346,400
United Pan-Europe Communications
(Telecommunications)* 1,800 67,362
------------
$ 1,413,762
- --------------------------------------------------------------------------------------------------------
Switzerland - 0.1%
Nestle S.A. (Food and Beverage Products) 400 $ 756,465
- --------------------------------------------------------------------------------------------------------
United Kingdom - 1.9%
BP Amoco PLC, ADR (Oils) 223,151 $ 18,967,835
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 29,024,523
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $802,088,229) $931,774,726
- --------------------------------------------------------------------------------------------------------
Convertible Bond - 0.1%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- --------------------------------------------------------------------------------------------------------
Financial Services - 0.1%
Bell Atlantic Financial Services, Inc., 4.25s, 2005##
(Identified Cost $819,454) $ 730 $ 799,350
- --------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.3%
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
Insurance - 0.1%
Lincoln National Corp. 1.85% 47,600 $ 952,000
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.2%
Reliant Energy, Inc., 7.00% 21,100 $ 2,310,450
- --------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $2,616,462) $ 3,262,450
- --------------------------------------------------------------------------------------------------------
Short-Term Obligations - 6.2%
- --------------------------------------------------------------------------------------------------------
SHARES OR
PRINCIPAL AMOUNT
- --------------------------------------------------------------------------------------------------------
CIT Group Holdings, Inc., due 3/01/99 $ 8,600,000 $ 8,600,000
Federal Home Loan Mortgage Corp., due 3/02/99 - 3/05/99 8,296,245 8,296,245
Federal National Mortgage Assn., due 3/01/99 1,400,000 1,400,000
Navigator Securities Lending Prime Portfolio 41,822,419 41,822,419
- --------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 60,118,664
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $865,642,809) $995,955,190
Other Assets, Less Liabilities - (1.9)% (18,691,229)
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $977,263,961
- --------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $865,642,809) $ 995,955,190
Cash 830,778
Foreign currency, at value (identified cost, $82) 79
Receivable for Fund shares sold 15,078,870
Receivable for investments sold 13,814,194
Dividends and interest receivable 314,262
Deferred organization expenses 801
Other assets 4,129
--------------
Total assets $1,025,998,303
--------------
Liabilities:
Payable for Fund shares reacquired $ 2,532,560
Payable for investments purchased 3,663,722
Collateral for securities loaned, at value 41,822,419
Payable to affiliates -
Management fee 60,140
Shareholder servicing agent fee 9,021
Distribution and service fee 520,474
Administrative fee 1,203
Accrued expenses and other liabilities 124,803
--------------
Total liabilities $ 48,734,342
--------------
Net assets $ 977,263,961
==============
Net assets consist of:
Paid-in capital $ 811,925,092
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 130,312,449
Accumulated undistributed net realized gain on
investments and foreign currency transactions 38,525,718
Accumulated net investment loss (3,499,298)
--------------
Total $ 977,263,961
==============
Shares of beneficial interest outstanding 37,579,708
==========
Class A shares:
Net asset value per share
(net assets of $362,673,135 / 13,852,848 shares of
beneficial interest outstanding) $26.18
======
Offering price per share (100 / 94.25) $27.78
======
Class B shares:
Net asset value and offering price per share
(net assets of $454,079,374 / 17,550,362 shares of
beneficial interest outstanding) $25.87
======
Class C shares:
Net asset value and offering price per share
(net assets of $132,407,173 / 5,107,929 shares of
beneficial interest outstanding) $25.92
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $28,104,279 / 1,068,569 shares of
beneficial interest outstanding) $26.30
======
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, 1999
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 1,402,417
Interest 1,125,243
Foreign taxes withheld (11,507)
------------
Total investment income $ 2,516,153
------------
Expenses -
Management fee $ 2,498,835
Trustees' compensation 19,098
Shareholder servicing agent fee 374,825
Distribution and service fee (Class A) 437,474
Distribution and service fee (Class B) 1,542,412
Distribution and service fee (Class C) 420,475
Administrative fee 33,795
Custodian fee 117,244
Printing 73,826
Postage 83,420
Auditing fees 19,952
Legal fees 1,605
Amortization of organization expenses 215
Miscellaneous 387,996
------------
Total expenses $ 6,011,172
Fees paid indirectly (19,031)
------------
Net expenses $ 5,992,141
------------
Net investment loss $ (3,475,988)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 41,356,246
Foreign currency transactions 21,989
------------
Net realized gain on investments and foreign currency
transactions $ 41,378,235
------------
Change in unrealized appreciation (depreciation) -
Investments $173,240,108
Translation of assets and liabilities in foreign currencies (16,688)
------------
Net unrealized gain on investments and foreign currency
translation $173,223,420
------------
Net realized and unrealized gain on investments and
foreign currency transactions $214,601,655
------------
Increase in net assets from operations $211,125,667
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment loss $ (3,475,988) $ (2,562,560)
Net realized gain on investments and foreign currency
transactions 41,378,235 18,965,380
Net unrealized gain (loss) on investments and foreign
currency translation 173,223,420 (49,616,495)
-------------- -------------
Increase (decrease) in net assets from operations $ 211,125,667 $ (33,213,675)
-------------- -------------
Distributions declared to shareholders -
From net realized gain on investments (Class A) $ (7,422,891) $ (507,750)
From net realized gain on investments (Class B) (8,619,831) (480,547)
From net realized gain on investments (Class C) (2,303,504) (144,468)
From net realized gain on investments (Class I) (774,501) (153,532)
-------------- -------------
Total distributions declared to shareholders $ (19,120,727) $ (1,286,297)
-------------- -------------
Net increase in net assets from Fund share transactions $ 349,199,695 $ 413,615,724
-------------- -------------
Total increase in net assets $ 541,204,635 $ 379,115,752
Net assets:
At beginning of period 436,059,326 56,943,574
-------------- -------------
At end of period (including accumulated net investment
loss of $3,499,298, and $23,310, respectively) $ 977,263,961 $ 436,059,326
============== =============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED PERIOD
ENDED AUGUST 31, ENDED
FEBRUARY 28, ------------------------------------ AUGUST 31,
1999 1998 1997 1996*
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $18.79 $16.79 $12.26 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.08) $(0.14) $(0.11) $ 0.02
Net realized and unrealized gain on
investments and foreign currency
transactions 8.19 2.32+ 6.67 2.24
------ ------ ------ ------
Total from investment operations $ 8.11 $ 2.18 $ 6.56 $ 2.26
------ ------ ------ ------
Less distributions declared to shareholders
from net realized gain on investments and
foreign currency transactions $(0.72) $(0.18) $(2.03) $ --
------ ------ ------ ------
Net asset value - end of period $26.18 $18.79 $16.79 $12.26
====== ====== ====== ======
Total return(+) 43.44%++ 13.07% 59.54% 22.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.44%+ 1.36% 1.29% 0.44%+
Net investment income (loss) (0.68)%+ (0.66)% (0.82)% 0.23%+
Portfolio turnover 47% 56% 82% 104%
Net assets at end of period (000 omitted) $362,673 $168,536 $21,699 $10,145
* For the period from the commencement of the Fund's investment operations, January 2, 1996, through August 31, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund had an expense offset arrangement which reduced the Fund's custodian fee 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.
+ The per share amount is not in accordance with the net realized and unrealized loss for the period because of the
timing of sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the
results would have been lower.
(S) Through August 31, 1997, subject to reimbursement by the Fund, the investment adviser agreed to maintain expenses of
the Fund, exclusive of management and distribution and service fees, at not more than 0.50% of average daily net
assets. The investment adviser and the distributor voluntarily waived a portion of their fees respectively, for
certain of the periods indicated. To the extent actual expenses were over this limitation and the waiver had not
been in place the net investment loss per share and the ratios would have been:
Net investment loss $ -- $(0.15) $(0.15) $(0.05)
Ratios (to average net assets):
Expenses## -- 1.43% 1.59% 1.84%+
Net investment loss -- (0.72)% (1.12)% (0.66)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
1999 1998 1997**
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $18.59 $16.75 $12.53
------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.15) $(0.28) $(0.09)
Net realized and unrealized gain on investments and
foreign currency transactions 8.10 2.30+ 4.31
------ ------ ------
Total from investment operations $ 7.95 $ 2.02 $ 4.22
------ ------ ------
Less distributions declared to shareholders from net $
realized gain on investments and foreign currency
transactions $(0.67) $(0.18) --
------ ------ ------
Net asset value - end of period $25.87 $18.59 $16.75
====== ====== ======
Total return 43.03%++ 12.12% 33.76%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.10%+ 2.08% 2.02%+
Net investment loss (1.33)%+ (1.36)% (1.46)%+
Portfolio turnover 47% 56% 82%
Net assets at end of period (000 omitted) $454,079 $196,519 $15,735
** For the period from the inception of Class B, April 11, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund had an expense offset arrangement which reduces the Fund's custodian fee 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.
+ The per share amount is not in accordance with the net realized and unrealized loss for the period because
of the timing of sales of Fund shares and the amount of per share realized and unrealized gains and losses
at such time.
(S) Through August 31, 1997, 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 0.50% of
average daily net assets. To the extent actual expenses were over this limitation, the net investment loss
per share and the ratios would have been:
Net investment loss $ -- $ -- $(0.12)
Ratios (to average net assets):
Expenses## -- -- 2.51%+
Net investment loss -- -- (1.95)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
1999 1998 1997***
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $18.63 $16.77 $12.53
------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.15) $(0.28) $(0.09)
Net realized and unrealized gain on investments and
foreign currency transactions 8.11 2.31+ 4.33
------ ------ ------
Total from investment operations $ 7.96 $ 2.03 $ 4.24
------ ------ ------
Less distributions declared to shareholders from net
realized gain on investments and foreign currency
transactions $(0.67) $(0.17) $ --
------ ------ ------
Net asset value - end of period $25.92 $18.63 $16.77
====== ====== ======
Total return 42.97%++ 12.20% 33.92%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.10%+ 2.08% 2.04%+
Net investment loss (1.34)%+ (1.37)% (1.48)%+
Portfolio turnover 47% 56% 82%
Net assets at end of period (000 omitted) $132,407 $52,668 $6,048
*** For the period from the inception of Class C, April 11, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund had an expense offset arrangement which reduces the Fund's custodian fee 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.
+ The per share amount is not in accordance with the net realized and unrealized loss for the period because
of the timing of sales of Fund shares and the amount of per share realized and unrealized gains and losses
at such time.
(S) Through August 31, 1997, 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 0.50% of
average daily net assets. To the extent actual expenses were over this limitation, the net investment loss
per share and the ratios would have been:
Net investment loss $ -- $ -- $(0.13)
Ratios (to average net assets):
Expenses## -- -- 2.56%+
Net investment loss -- -- (1.99)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
1999 1998 1997****
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $18.85 $16.80 $12.08
------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.04) $(0.08) $(0.04)
Net realized and unrealized gain on investments and
foreign currency transactions 8.24 2.31+ 4.76
------ ------ ------
Total from investment operations $ 8.20 $ 2.23 $ 4.72
------ ------ ------
Less distributions declared to shareholders from net
realized gain on investments and foreign currency
transactions $(0.75) $(0.18) $ --
------ ------ ------
Net asset value - end of period $26.30 $18.85 $16.80
====== ====== ======
Total return 43.82%++ 13.32% 39.24%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.07%+ 1.08% 0.94%+
Net investment loss (0.31)%+ (0.37)% (0.40)%+
Portfolio turnover 47% 56% 82%
Net assets at end of period (000 omitted) $28,104 $18,335 $13,462
**** For the period from the inception of Class I, January 2, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund had an expense offset arrangement which reduces the Fund's custodian fee 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.
+ The per share amount is not in accordance with the net realized and unrealized loss for the period because
of the timing of sales of Fund shares and the amount of per share realized and unrealized gains and losses
at such time.
(S) Through August 31, 1997, 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 0.50%
of average daily net assets. To the extent actual expenses were over this limitation, the net investment
loss per share and the ratios would have been:
Net investment loss $ -- $ -- $(0.06)
Ratios (to average net assets):
Expenses## -- -- 1.14%+
Net investment loss -- -- (0.60)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Strategic Growth Fund (the Fund) is a diversified series of MFS Series
Trust I (the Trust). The Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or over-the-
counter prices. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of Fund
operations.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Fund's tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on Form
1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the Fund's average daily net assets.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an unfunded
defined benefit plan for all of its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of
$5,534, for the six months ended February 28, 1999.
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
$444,104, for the six months ended February 28, 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 $24,089,
for the six months ended February 28, 1999. Fees incurred under the
distribution plan during the six months ended February 28, 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 $770, and $198, for
Class B and Class C shares, respectively, for the six months ended February
28, 1999. Fees incurred under the distribution plan during the six months
ended February 28, 1999, were 1.00% of average daily net assets attributable
to both Class B and Class C shares on an annualized basis.
Certain Class A shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months
following purchase. A contingent deferred sales charge is imposed on
shareholder redemption's of Class B shares in the event of a shareholder
redemption within six years of purchase. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the six months
ended February 28, 1999, were $3,318, $282,338, and $22,987 for Class A, Class
B, and Class C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.1125%. Prior to January 1, 1998, the fee was calculated as a
percentage of the average Fund's daily net assets at an effective annual rate
of 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$586,749,445 and $299,160,435, 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 $865,642,809
------------
Gross unrealized appreciation $156,269,503
Gross unrealized depreciation (25,957,122)
------------
Net unrealized appreciation $130,312,381
============
<PAGE>
(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
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED AUGUST 31, 1998
---------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 8,228,957 $198,193,042 10,667,794 $224,279,952
Shares issued to shareholders in
reinvestment of distributions 281,892 6,711,856 26,387 457,569
Shares reacquired (3,629,193) (83,391,211) (3,015,275) (65,422,263)
----------- ------------ ---------- ------------
Net increase 4,881,656 $121,513,687 7,678,906 $159,315,258
=========== ============ ========== ============
<CAPTION>
Class B Shares
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED AUGUST 31, 1998
---------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 8,507,450 $204,658,370 11,268,558 $234,302,856
Shares issued to shareholders in
reinvestment of distributions 324,042 7,637,907 25,134 433,643
Shares reacquired (1,851,671) (43,161,393) (1,662,490) (35,110,261)
----------- ------------ ---------- ------------
Net increase 6,979,821 $169,134,884 9,631,202 $199,626,238
=========== ============ ========== ============
<CAPTION>
Class C Shares
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED AUGUST 31, 1998
---------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,151,556 $ 76,356,069 2,790,666 $ 57,991,612
Shares issued to shareholders in
reinvestment of distributions 79,453 1,875,872 7,901 136,530
Shares reacquired (950,879) (21,953,197) (331,348) (6,905,904)
----------- ------------ ---------- ------------
Net increase 2,280,130 $ 56,278,744 2,467,219 $ 51,222,238
=========== ============ ========== ============
<CAPTION>
Class I Shares
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED AUGUST 31, 1998
---------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 196,204 $ 4,761,930 277,623 $ 5,707,697
Shares issued to shareholders in
reinvestment of distributions 32,260 771,016 8,787 152,637
Shares reacquired (132,604) (3,260,566) (114,869) (2,408,344)
----------- ------------ ---------- ------------
Net increase 95,860 $ 2,272,380 171,541 $ 3,451,990
=========== ============ ========== ============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of Fund
shares. Interest is charged to each fund, based on its borrowings, at a rate
equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Fund for the six months ended February 28, 1999, was $2,461.
(7) Security Lending
The Fund may lend its securities to member banks of the Federal Reserve System
and to member firms of the New York Stock Exchange or subsidiaries thereof.
The securities are loaned by State Street Bank, as agent, to certain brokers
(the "Borrowers"). The loans are collateralized at all times by cash in an
amount at least equal to the market value of the securities loaned. State
Street Bank provides the Fund with indemnification against borrower default.
The Fund bears the risk of loss with respect to the investment of cash
collateral.
At February 28, 1999, the value of securities loaned was $40,468,736. These
loans were collateralized by cash of $41,822,419. 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
Bank in its capacity as lending agent. Income from securities lending is
included in interest income on the Statement of Operations. The dividend and
interest income earned on the securities loaned is accounted for in the same
manner as other dividend and interest income.
<PAGE>
<TABLE>
MFS(R) STRATEGIC GROWTH FUND
<CAPTION>
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Former Stephen E. Cavan*
Chairman and Director (until 1991), MFS Investment
Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor
CUSTODIAN
Lawrence H. Cohn, M.D. - Chief of Cardiac Surgery, State Street Bank and Trust Company
Brigham and Women's Hospital; Professor of
Surgery, Harvard Medical School INVESTOR INFORMATION
For MFS stock and bond market outlooks,
The Hon. Sir J. David Gibbons, KBE - Chief call toll free: 1-800-637-4458 anytime from
Executive Officer, Edmund Gibbons Ltd.; Chairman, a touch-tone telephone.
Colonial Insurance Company, Ltd.
For information on MFS mutual funds, call your
Abby M. O'Neill - Private Investor financial adviser or, for an information kit, call
toll free: 1-800-637-2929 any business day from
Walter E. Robb, III - President and Treasurer, 9 a.m. to 5 p.m. Eastern time (or leave a message
Benchmark Advisors, Inc. (corporate financial anytime).
consultants); President, Benchmark Consulting
Group, Inc. (office services) INVESTOR SERVICE
MFS Service Center, Inc.
Arnold D. Scott* - Senior Executive P.O. Box 2281
Vice President, Director, and Secretary, Boston, MA 02107-9906
MFS Investment Management
For general information, call toll free:
Jeffrey L. Shames* - Chairman, Chief 1-800-225-2606 any business day from
Executive Officer, and Director, 8 a.m. to 8 p.m. Eastern time.
MFS Investment Management
For service to speech- or hearing-impaired, call
J. Dale Sherratt - President, Insight Resources, toll free: 1-800-637-6576 any business day from
Inc. (acquisition planning specialists) 9 a.m. to 5 p.m. Eastern time. (To use this service,
your phone must be equipped with a
Ward Smith - Former Chairman (until 1994), NACCO Telecommunications Device for the Deaf.) For share
Industries (holding company) prices, account balances, and exchanges, call toll
free: 1-800-MFS-TALK (1-800-637-8255) anytime from
INVESTMENT ADVISER a touch-tone telephone.
Massachusetts Financial Services Company
500 Boylston Street WORLD WIDE WEB
Boston, MA 02116-3741 www.mfs.com
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGERS
S. Irfan Ali*
Stephen Pesek*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
</TABLE>
*Affiliated with the Investment Adviser
<PAGE>
MFS(R) STRATEGIC GROWTH FUND ------------
BULK RATE
U.S. POSTAGE
[logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
WE INVENTED THE MUTUAL FUND(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MSG-3 4/99 79M 90/290/390/890