<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) RESEARCH
INTERNATIONAL FUND
ANNUAL REPORT o AUGUST 31, 1999
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 34)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 17
Notes to Financial Statements ............................................. 24
Independent Auditors' Report .............................................. 31
MFS' Year 2000 Readiness Disclosure ....................................... 33
Trustees and Officers ..................................................... 37
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 David A. Antonelli]
David A. Antonelli
For the period ended August 31, 1999, Class A shares of the Fund provided a
total return of 23.53%, Class B shares 22.84%, Class C shares 22.74%, and
Class I shares 24.08%. These returns, which include the reinvestment of any
distributions but exclude the effects of any sales charges, compare over the
same period to a 26.03% return for the Morgan Stanley Capital International
(MSCI) Europe, Australia, Far East (EAFE) Index, an unmanaged index of
international stocks, and to a 24.82% return for the average international
fund tracked by Lipper Analytical Services, Inc., an independent firm that
reports mutual fund performance.
Q. WHAT DO YOU BELIEVE HAS HAD THE BIGGEST IMPACT ON THE FUND'S PERFORMANCE OVER
THE PAST YEAR?
A. The Fund slightly underperformed the MSCI EAFE Index during the period for
two reasons. First, for this all-capitalization portfolio, investment
decisions are based on company fundamentals and valuations rather than
market cap. Similar to the phenomenon experienced in the United States
during the past several years, the best international equity performance
has been centered on large-cap names, which hurt multicap, diversified
portfolios like ours. Second, over the period we have underweighted the
Asian markets, particularly Japan. Japan has had a remarkable turnaround.
Since we believe that this recovery is sustainable, we have been increasing
our exposure to that area over the period. On the other hand, the Fund has
benefited positively from our stock selections. We continue to take
advantage of market inefficiencies whenever possible. In particular,
investments in telecommunications and retail, both in Europe and Japan,
have added to performance.
Q. THE FUND HAS SIGNIFICANT HOLDINGS IN EUROPE. WHY?
A. The restructuring and consolidation, which has been in process in the
United States over the past decade, is accelerating now in Europe. We
believe this may result in improved earnings growth for European companies
as they reduce headcounts, invest in technology to improve productivity,
and sell noncore assets. With restructuring driving improved returns and
more mergers and acquisitions likely to support stock prices, we believe
Europe is an attractive area for investment.
Q. CAN YOU GIVE AN EXAMPLE OF ONE OF THESE CONSOLIDATING INDUSTRIES?
A. Financial services, our top sector, seems ideally suited to the process,
since these kinds of companies can cut costs by as much as 30% to
40% through a combination of back offices, branch closures, and
rationalization of the distribution network. The euro's status as the
common currency is encouraging this consolidation. Although companies face
considerable challenges in cross-border mergers, we believe many will be
rewarded. Skandia, a Swedish financial services company, ING Groep, a Dutch
insurance company, and UBS, a Swiss bank, have been among our top holdings
during the past 12 months. AXA, a French insurance company new to the Fund,
also is among our top holdings. All these companies have been capitalizing on
the consolidation trend within the sector.
Q. JAPAN IS SHOWING SOME PROGRESS-HOW IS THE FUND INVESTING THERE?
A. We have increased our holdings in Japan to nearly 26% of the portfolio's
assets, versus about 16% late this spring. Takeda Chemical, Hitachi, an
electronics company, and Nippon Telephone and Telegraph are among our major
holdings. For the first time, Japanese companies are not merely talking
about restructuring, they are actually doing it. We see this trend
continuing for many years as Japan's historically inwardly focused market
opens up. At the other end of the Japanese market, small-cap companies have
experienced good growth recently. Companies such as Don Quijote, one of
Japan's first discount retailers and one of our largest holdings, are
showing excellent growth as they benefit from the market transformation.
Q. WHAT ABOUT THE FINANCIAL SERVICES SECTOR IN JAPAN?
A. Historically, Japanese banks have been saddled with a large number of
nonperforming loans that have choked off their lending. However, the banks
are in the process of cleaning out these loans and recapitalizing their
balance sheets with the help of the Japanese government. As these banks
restructure their businesses we expect a significant improvement in
profitability in the coming years. We own shares in Sakura Bank, which is
undergoing this process.
Q. ARE THE EMERGING MARKET ECONOMIES SUPPORTING GROWTH?
A. Most emerging market economies are showing signs of growth after a
difficult year in 1998. Financial controls have improved and currencies
have stabilized, providing a platform for future growth. Nevertheless, the
level of economic growth is likely to be lower than we have seen
historically as these countries repair their balance sheets. Stock
selection is particularly important in these countries because the liquid,
well-managed companies are trading at high valuations.
Q. WHAT DISTINGUISHES MFS' APPROACH TO INTERNATIONAL MARKETS?
A. We are committed to participating in these markets, using MFS Original
Research(R) to search out companies we believe will show capital
appreciation. Our experienced analyst team, whose members work from offices
in Boston, London, Singapore, and Tokyo, manages the Fund's stock
selection. Analyzing international stocks can be more challenging than
analyzing U.S. stocks because of less-frequent company reporting periods,
generally poorer communication processes, and less efficient markets.
However, we believe firms, such as MFS, that have global scale, resource
depth, and market knowledge can turn that added complexity into good
investment opportunities which can deliver significant rewards to their
fund shareholders by participating in international markets.
Looking ahead, we believe the combination of improving economic growth
conditions and the favorable impact of restructuring and consolidation should
lead to strong earnings growth across Europe and in Japan. We also believe
relative performance of the international markets is likely to improve
compared to the performance of the U.S. market.
/s/ David A. Antonelli
David A. Antonelli
Director of International Equity Research
The committee of MFS international equity research analysts is responsible for
the day-to-day management of the Fund under the general supervision of Mr.
Antonelli.
The opinions expressed in this report are those of the Director of
International Equity Research and are current only through the end of the
period of the report as stated on the cover. His views are subject to change
at any time based on market and other conditions, and no forecasts can be
guaranteed.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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DAVID A. ANTONELLI IS SENIOR VICE PRESIDENT AND DIRECTOR OF
INTERNATIONAL EQUITY RESEARCH OF MFS INVESTMENT MANAGEMENT(R). HE
OVERSEES MFS(R) RESEARCH INTERNATIONAL FUND AND THE RESEARCH
INTERNATIONAL SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS.
MR. ANTONELLI IS ALSO A PORTFOLIO MANAGER OF MFS(R) GLOBAL GROWTH FUND
AND THE GLOBAL GROWTH SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY
PRODUCTS.
HE JOINED MFS IN 1991 AS A RESEARCH ANALYST FOLLOWING FOREIGN STOCKS,
WITH A CONCENTRATION IN CONTINENTAL EUROPE. HE WAS NAMED ASSISTANT VICE
PRESIDENT IN 1994, VICE PRESIDENT IN 1995, PORTFOLIO MANAGER IN 1997,
AND DIRECTOR OF INTERNATIONAL EQUITY RESEARCH AND SENIOR VICE PRESIDENT
IN 1999. MR. ANTONELLI IS A GRADUATE OF PENNSYLVANIA STATE UNIVERSITY
AND THE WHARTON SCHOOL OF FINANCE AND COMMERCE OF THE UNIVERSITY
OF PENNSYLVANIA.
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 JANUARY 2, 1998
CLASS C JANUARY 2, 1998
CLASS I JANUARY 2, 1997
SIZE: $32.4 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 Research International
Fund Class A MSCI EAFE Index
1/97 $ 9,425 $10,000
8/97 10,330 10,476
8/98 10,735 10,490
8/99 13,261 13,220
<PAGE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH AUGUST 31, 1999
CLASS A
1 Year Life*
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Cumulative Total Return +23.53% +40.70%
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Average Annual Total Return +23.53% +13.70%
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SEC Results +16.43% +11.19%
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CLASS B
1 Year Life*
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Cumulative Total Return +22.84% +39.50%
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Average Annual Total Return +22.84% +13.33%
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SEC Results +18.84% +12.42%
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CLASS C
1 Year Life*
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Cumulative Total Return +22.74% +39.40%
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Average Annual Total Return +22.74% +13.30%
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SEC Results +21.74% +13.30%
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CLASS I
1 Year Life*
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Cumulative Total Return +24.08% +41.61%
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Average Annual Total Return +24.08% +13.97%
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COMPARATIVE INDICES
1 Year Life*
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Average international fund** +24.82% +11.39%
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MSCI EAFE Index+ +26.03% +12.95%
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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.
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.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably
affected by changes in interest rates and currency exchange rates, market
conditions, and the economic and political conditions of the countries where
investments are made. These risks may increase share price volatility. See the
prospectus for details.
<PAGE>
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1999
FIVE LARGEST SECTORS
FINANCIAL SERVICES 22.3%
TECHNOLOGY 13.9%
UTILITIES & COMMUNICATIONS 13.3%
HEALTH CARE 9.0%
RETAILING 8.3%
TOP 10 STOCK HOLDINGS
MANNESMANN AG 2.7% NTT MOBILE COMMUNICATIONS NETWORK,
German industrial and INC. 1.6%
telecommunications company Japanese mobile phone company
SKANDIA FORSAKRINGS AB 2.4% ING GROEP N.V. 1.6%
Swedish insurance company Dutch insurance company
UBS AG 1.9% NESTLE S.A. 1.6%
Swiss banking and investment Swiss diversified food conglomerate
company
TELEVISION FRANCAISE 1.6%
DON QUIJOTE CO., LTD. 1.8% French broadcasting company
Japanese discount retailer
BP AMOCO PLC 1.5%
NIPPON TELEPHONE & TELEGRAPH British oil company
CO. 1.7%
Japanese phone company
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- August 31, 1999
Stocks - 99.7%
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ISSUER SHARES VALUE
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Foreign Stocks - 95.5%
Australia - 1.6%
Cable & Wireless Optus (Telecommunications) 179,184 $ 391,218
QBE Insurance Group Ltd. (Insurance)* 35,939 128,483
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$ 519,701
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Bermuda - 0.8%
Dairy Farm International Holdings Ltd.
(Supermarkets) 260,000 $ 258,700
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Brazil - 0.4%
Tele Norte Leste Participacoes S.A., ADR
(Telecommunications) 8,255 $ 132,080
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Canada - 1.8%
Abitibi-Consolidated, Inc. (Forest and Paper
Products) 14,109 $ 167,544
Aliant, Inc. (Telecommunications)* 7,400 112,294
Canadian National Railway Co. (Railroads) 2,412 153,313
Toronto-Dominion Bank (Banks and Credit Cos.) 7,484 145,938
------------
$ 579,089
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Finland - 2.3%
Helsingin Puhelin Oyj (Telecommunications) 6,856 $ 319,115
Perlos Corp. (Electronics)* 14,100 201,362
Tieto Corp. (Computer Software - Systems) 6,405 216,817
------------
$ 737,294
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France - 8.6%
AXA (Insurance) 3,903 $ 486,371
Castorama-Dubois Investisse (Stores) 1,421 371,292
Rhone-Poulenc S.A. (Pharmaceuticals) 9,500 461,476
SEITA (Tobacco) 6,988 381,440
Television Francaise (Entertainment) 2,014 502,800
Total S.A., "B" (Oils) 3,183 410,791
Wavecom S.A., ADR (Electronics)* 11,478 177,909
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$ 2,792,079
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Germany - 6.0%
Fielmann AG (Retail) 4,076 $ 162,123
Henkel KGaA, Preferred (Chemicals) 6,046 438,109
HypoVereinsbank (Banks and Credit Cos.) 5,107 303,077
Mannesmann AG (Conglomerate) 5,677 871,986
Porsche AG (Automotive) 73 184,177
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$ 1,959,472
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Greece - 0.7%
Antenna TV S.A., ADR (Broadcasting)* 1,570 $ 17,172
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 8,978 186,314
STET Hellas Telecommunications S.A., ADR
(Telecommunications)* 2,223 38,069
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$ 241,555
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Hong Kong - 1.0%
Li & Fung Ltd. (Wholesale) 106,000 $ 339,914
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Ireland - 3.1%
Anglo Irish Bank PLC (Banks and Credit Cos.)* 173,695 $ 452,694
Bank of Ireland (Banks and Credit Cos.)* 41,048 372,131
Elan Corp. PLC, ADR (Health Products)* 6,000 192,375
------------
$ 1,017,200
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Italy - 2.9%
Banca Carige S.p.A. (Banks and Credit Cos.) 20,295 $ 178,193
Mediaset S.p.A. (Entertainment) 21,438 189,590
San Paolo - Imi S.p.A (Banks and Credit Cos.) 23,767 319,554
Telecom Italia Mobile S.p.A. (Telecommunications) 40,909 238,448
------------
$ 925,785
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Japan - 25.8%
Aeon Credit Service Co., Ltd. (Financial Services) 4,060 $ 432,606
Canon, Inc. (Special Products and Services) 12,000 351,214
Chugai Pharmaceutical Co., Ltd. (Pharmaceuticals) 27,000 298,806
Daiwa Securities Group, Inc. (Banks and Credit Cos.) 16,000 145,022
Don Quijote Co., Ltd. (Retail) 2,700 585,266
East Japan Railway Co. (Railroads) 50 303,197
Fuji Heavy Industries, Ltd. (Automotive) 19,000 151,534
Hitachi (Electronics) 48,000 487,749
Keyence Corp. (Electronics) 1,510 343,198
Kokusai Securities Co., Ltd. (Financial Services) 5,000 81,401
Mikuni Coca-Cola Bottling Co., Ltd. (Food and
Beverage Products) 12,000 226,643
Mitsubishi Motor (Automotive) 43,000 234,006
Mitsui Marine and Fire Insurance Co., Ltd.
(Insurance) 22,000 120,931
Nippon Telephone & Telegraph Co. (Utilities -
Telephone) 50 562,491
NTT Mobile Communications Network, Inc.
(Telecommunications) 13 216,399
NTT Mobile Communications Network, Inc.
(Telecommunications)* 32 529,748
Rock Field Co., Ltd. (Food Products) 3,000 175,607
Rohm Co. (Electronics) 2,100 418,713
Sakura Bank Ltd. (Banks) 88,000 466,822
Sony Corp. (Electronics) 1,400 181,570
Sumitomo Bank Ltd. (Banks and Credit Cos.) 11,000 150,912
Takeda Chemical Industries Co. (Pharmaceuticals) 8,000 402,433
TDK Corp. (Special Products and Services) 3,000 364,934
Terumo Corp. (Pharmaceuticals) 15,000 480,176
Tokyo Marine & Fire Insurance (Insurance) 27,000 318,562
Ushio, Inc. (Electronics) 25,000 322,404
------------
$ 8,352,344
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Mexico - 0.9%
Panamerican Beverages, Inc. (Food and Beverage
Products) 15,392 $ 289,562
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Netherlands - 9.2%
Akzo Nobel N.V. (Chemicals) 5,353 $ 249,441
Benckiser N.V., "B" (Consumer Goods and Services) 4,571 279,488
Equant N.V. (Computer Software - Services)* 1,864 164,149
Fugro N.V. (Engineering)* 8,082 268,028
Hunter Douglas N.V., ADR (Consumer Goods and
Services)* 9,272 291,799
IHC Caland N.V. (Marine Equipment)* 3,492 164,568
ING Groep N.V. (Financial Services)* 9,626 528,490
Koninklijke Ahrend Groep N.V. (Consumer Goods
and Services)* 15,108 218,953
Koninklijke Philips Electronics N.V. (Electronics) 3,918 404,311
Van der Moolen Holding N.V. (Financial Services)* 2,400 147,253
Wolters Kluwer N.V. (Publishing)* 6,800 253,207
------------
$ 2,969,687
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New Zealand - 0.2%
Warehouse Group (Retail) 20,900 $ 79,975
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Philippines - 0.4%
Philippine Long Distance Telephone Co.
(Utilities - Telephone) 5,563 $ 131,773
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Portugal - 1.0%
Banco Pinto & Sotto Mayor S.A. (Banks and
Credit Cos.) 16,878 $ 312,809
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Singapore - 2.4%
Datacraft Asia Ltd. (Telecommunications) 46,000 $ 177,560
DBS Bank, Ltd. (Banks and Credit Cos.) 23,260 266,658
Hong Leong Finance Ltd. (Finance)+ 79,000 166,118
Natsteel Electronics Ltd. (Electronics) 35,000 174,636
------------
$ 784,972
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South Korea - 0.4%
Korea Telecom Corp. (Telecommunications)* 4,325 $ 140,562
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Spain - 2.9%
Cortefiel S.A. (Retail) 12,731 $ 363,891
Repsol S.A. (Oils) 11,152 233,111
Telefonica S.A. (Telecommunications)* 20,645 329,774
------------
$ 926,776
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Sweden - 5.5%
Celsius AB (Aerospace) 20,758 $ 242,046
Ericsson LM, "B" (Telecommunications) 11,688 377,628
Saab AB, "B" (Aerospace) 49,331 386,475
Skandia Forsakrings AB (Insurance) 37,489 764,989
------------
$ 1,771,138
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Switzerland - 4.6%
Barry Callebaut AG (Food and Beverage Products) 345 $ 59,298
Julius Baer Holdings (Banks and Credit Cos.) 94 290,196
Nestle S.A. (Food and Beverage Products) 259 511,939
UBS AG (Banks and Credit Cos.) 2,183 616,932
------------
$ 1,478,365
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United Kingdom - 12.6%
BP Amoco PLC (Oils)* 26,562 $ 492,711
British Aerospace PLC (Aerospace)* 47,519 346,694
British Telecommunications PLC
(Telecommunications)* 19,200 294,063
Cable & Wireless Communications PLC
(Telecommunications) 25,422 265,434
Capital Radio PLC (Broadcasting) 12,244 171,965
Computacenter PLC (Computer - Services) 32,500 299,076
Diageo PLC (Food and Beverage Products)* 15,300 155,318
Freeserve Ordinary PLC (Computer Software -
Systems)* 5,300 15,519
Next PLC (Stores) 13,648 156,992
Nycomed Amersham PLC (Medical and Health
Products) 40,300 265,822
Orange PLC (Telecommunications) 600 10,131
Reuters Group PLC (Business Services) 23,011 338,179
Sema Group PLC (Computer Software - Systems) 32,356 351,367
Tesco PLC (Retail)* 65,000 192,413
Vodafone Group PLC (Telecommunications) 1,570 314,883
Zeneca Group PLC (Medical and Health Products) 10,071 399,385
------------
$ 4,069,952
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Venezuela - 0.4%
C.A. La Electricidad de Caracas, ADR
(Utilities - Electric) 8,114 $ 115,624
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Total Foreign Stocks $ 30,926,408
- --------------------------------------------------------------------------------
U.S. Stocks - 4.2%
Advertising - 0.5%
Young & Rubicam, Inc. 3,574 $ 159,490
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Computer Software - Systems
Liberate Technologies, Inc.* 75 $ 1,978
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Forest and Paper Products - 0.6%
Jefferson Smurfit Corp. 67,733 $ 192,875
- --------------------------------------------------------------------------------
Medical and Health Products - 1.2%
Pharmacia & Upjohn, Inc. 7,452 $ 389,367
- --------------------------------------------------------------------------------
Oils - 1.4%
Atlantic Richfield Co. 5,100 $ 448,481
- --------------------------------------------------------------------------------
Telecommunications - 0.5%
Global TeleSystems Group, Inc.* 4,818 $ 155,681
- --------------------------------------------------------------------------------
Total U.S. Stocks $ 1,347,872
- --------------------------------------------------------------------------------
Total Stocks (Identified Cost, $29,663,051) $ 32,274,280
- --------------------------------------------------------------------------------
Short-Term Obligations - 0.9%
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 9/01/99 at
Amortized Cost $ 300 $ 300,000
- --------------------------------------------------------------------------------
Other Short-Term Obligations - 8.0%
- --------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio
(Identified Cost, $2,597,930) 2,597,930 $ 2,597,930
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $32,560,981) $ 35,172,210
Other Assets, Less Liabilities - (8.6%) (2,800,080)
- --------------------------------------------------------------------------------
Net Assets - 100.0% $ 32,372,130
- --------------------------------------------------------------------------------
* Non-income producing security.
+ Restricted security.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
AUGUST 31, 1999
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $32,560,981) $35,172,210
Cash 12,014
Foreign currency, at value (identified cost, $42,848) 44,347
Receivable for Fund shares sold 56,661
Receivable for investments sold 91,791
Interest and dividends receivable 46,006
Other assets 1,612
-----------
Total assets $35,424,641
-----------
Liabilities:
Payable for Fund shares reacquired $ 104,886
Payable for investments purchased 328,797
Collateral for securities loaned, at value 2,597,930
Payable to affiliates -
Management fee 2,696
Distribution and service fee 17,122
Accrued expenses and other liabilities 1,080
-----------
Total liabilities $ 3,052,511
-----------
Net assets $32,372,130
===========
Net assets consist of:
Paid-in capital $29,065,679
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 2,612,898
Accumulated undistributed net realized gain on investments
and foreign currency transactions 662,088
Accumulated undistributed net investment income 31,465
-----------
Total $32,372,130
===========
Shares of beneficial interest outstanding 2,604,986
=========
Class A shares:
Net asset value per share
(net assets of $16,839,046 / 1,350,364 shares of
beneficial interest outstanding) $12.47
======
Offering price per share (100 / 94.25 of net asset value
per share) $13.23
======
Class B shares:
Net asset value and offering price per share
(net assets of $10,683,419 / 863,519 shares of
beneficial interest outstanding) $12.37
======
Class C shares:
Net asset value and offering price per share
(net assets of $3,802,274 / 307,647 shares of beneficial
interest outstanding) $12.36
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $1,047,391 / 83,456 shares of beneficial
interest outstanding) $12.55
======
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 -
Dividends $ 374,856
Interest 55,861
Foreign taxes withheld (42,208)
-----------
Total investment income $ 388,509
-----------
Expenses -
Management fee $ 196,720
Shareholder servicing agent fee 21,829
Distribution and service fee (Class A) 34,736
Distribution and service fee (Class B) 67,301
Distribution and service fee (Class C) 19,215
Administrative fee 2,553
Custodian fee 42,319
Printing 34,759
Postage 7,555
Auditing fees 47,499
Legal fees 3,588
Registration fees 44,235
Miscellaneous 10,944
-----------
Total expenses $ 533,253
Fees paid indirectly (3,482)
Reduction of expenses by investment adviser (142,842)
-----------
Net expenses $ 386,929
-----------
Net investment income $ 1,580
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 679,170
Foreign currency transactions (14,105)
-----------
Net realized gain on investments and foreign currency
transactions $ 665,065
-----------
Change in unrealized appreciation -
Investments $ 3,692,707
Translation of assets and liabilities in foreign currencies 1,984
-----------
Net unrealized gain on investments and foreign currency
translation $ 3,694,691
-----------
Net realized and unrealized gain on investments and
foreign currency $ 4,359,756
-----------
Increase in net assets from operations $ 4,361,336
===========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,580 $ 9,828
Net realized gain on investments and foreign currency
transactions 665,065 193,471
Net unrealized gain (loss) on investments and foreign
currency translation 3,694,691 (1,033,460)
------------ ------------
Increase (decrease) in net assets from operations $ 4,361,336 $ (830,161)
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (5,023) $ (5,588)
From net investment income (Class B) (630) --
From net investment income (Class C) (186) --
From net investment income (Class I) (1,934) (5,193)
From net realized gain on investments and foreign currency
transactions (Class A) (103,796) (125,647)
From net realized gain on investments and foreign currency
transactions (Class B) (70,643) --
From net realized gain on investments and foreign currency
transactions (Class C) (19,022) --
From net realized gain on investments and foreign currency
transactions (Class I) (17,130) (116,751)
------------ ------------
Total distributions declared to shareholders $ (218,364) $ (253,179)
------------ ------------
Net increase in net assets from Fund share transactions $ 19,419,365 $ 7,557,045
------------ ------------
Total increase in net assets $ 23,562,337 $ 6,473,705
Net assets:
At beginning of period 8,809,793 2,336,088
------------ ------------
At end of period (including accumulated undistributed net
investment income of $31,465 and $6,724, respectively) $ 32,372,130 $ 8,809,793
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
---------------------------------- AUGUST 31,
1999 1998 1997*
- ---------------------------------------------------------------------------------------------------------------
CLASS A
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.24 $10.95 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.03 $ 0.03 $ 0.06
Net realized and unrealized gain on investments
and foreign currency 2.36 0.35 0.89
------ ------ ------
Total from investment operations $ 2.39 $ 0.38 $ 0.95
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.01) $(0.05) $ --
From net realized gain on investments and
foreign currency transactions (0.15) (1.04) --
------ ------ ------
Total distributions declared to
shareholders $(0.16) $(1.09) $ --
------ ------ ------
Net asset value - end of period $12.47 $10.24 $10.95
====== ====== ======
Total return(+) 23.53% 3.92% 9.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.72% 1.76% 1.68%+
Net investment income 0.27% 0.28% 0.71%+
Portfolio turnover 136% 89% 137%
Net assets at end of period (000 omitted) $16,839 $3,741 $1,314
(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 0.40% of average daily net
assets. For the period ended August 31, 1997, the investment adviser agreed to maintain the expenses of the
Fund at not more than 1.75% of the Fund's average daily net assets. The investment adviser, distributor, and
shareholder servicing agent did not impose any of their fees for the period ended August 31, 1997. If these
fees had not been waived and actual expenses had been over this limitation, the net investment loss per
share and the ratios would have been:
Net investment loss $(0.05) $(0.19) $(0.01)
Ratios (to average net assets):
Expenses## 2.45% 3.99% 3.31%+
Net investment loss (0.46)% (1.94)% (0.91)%+
* 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 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.
(+) 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.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- ----------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
1999 1998*
- ----------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.21 $ 9.93
------ ------
Income from investment operations# -
Net investment loss(S) $(0.04) $(0.03)
Net realized and unrealized gain on
investments and foreign currency 2.35 0.31
------ ------
Total from investment operations $ 2.31 $ 0.28
------ ------
Less distributions declared to shareholders -
From net investment income $(0.00)+++ $ --
From net realized gain on investments and
foreign currency transactions (0.15) --
------ ------
Total distributions declared to shareholders $
$(0.15) --
------ ------
Net asset value - end of period $12.37 $10.21
====== ======
Total return 22.84% 2.82%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.37% 2.41%+
Net investment loss (0.36)% (0.29)%+
Portfolio turnover 136% 89%
Net assets at end of period (000 omitted) $10,683 $3,141
(S) Subject to reimbursement by the Fund, the investment adviser agreed to
maintain the expenses of the Fund, exclusive of management and distribution
fees, at not more than 0.40% 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) $(0.24)
Ratios (to average net assets):
Expenses## 3.10% 4.56%+
Net investment loss (1.09)% (2.43)%+
* For the period from the inception of Class B, January 2, 1998, through
August 31, 1998.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund has 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.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- ----------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
1999 1998*
- ----------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.21 $ 9.93
------ ------
Income from investment operations# -
Net investment loss(S) $(0.04) $(0.01)
Net realized and unrealized gain on
investments and foreign currency 2.34 0.29
------ ------
Total from investment operations $ 2.30 $ 0.28
------ ------
Less distributions declared to shareholders -
From net investment income $(0.00)+++ $ --
From net realized gain on investments and
foreign currency transactions (0.15) --
------ ------
Total distributions declared to
shareholders $(0.15) $ --
------ ------
Net asset value - end of period $12.36 $10.21
====== ======
Total return 22.74% 2.82%++
Ratios (to average net assets)/ Supplemental data(S):
Expenses## 2.37% 2.40%+
Net investment loss (0.33)% (0.10)%+
Portfolio turnover 136% 89%
Net assets at end of period (000 omitted) $3,802 $ 729
(S) Subject to reimbursement by the Fund, the investment adviser agreed to
maintain the expenses of the Fund, exclusive of management and distribution
fees, at not more than 0.40% 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) $(0.22)
Ratios (to average net assets):
Expenses## 3.10% 4.55%+
Net investment loss (1.06)% (2.24)%+
* For the period from the inception of Class C, January 2, 1998, through
August 31, 1998.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund has 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.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
---------------------------------- AUGUST 31,
1999 1998 1997*
- ---------------------------------------------------------------------------------------------------------------
CLASS I
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.26 $10.95 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.05 $ 0.06 $ 0.07
Net realized and unrealized gain on investments
and foreign currency 2.42 0.34 0.88
------ ------ ------
Total from investment operations $ 2.47 $ 0.40 $ 0.95
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.02) $(0.05) $ --
From net realized gain on investments and
foreign currency transactions (0.16) (1.04) --
------ ------ ------
Total distributions declared to
shareholders $(0.18) $(1.09) $ --
------ ------ ------
Net asset value - end of period $12.55 $10.26 $10.95
====== ====== ======
Total return 24.08% 4.13% 9.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.37% 1.40% 1.68%+
Net investment income 0.47% 0.53% 0.85%+
Portfolio turnover 136% 89% 137%
Net assets at end of period (000 omitted) $1,047 $1,199 $1,022
(S) Subject to reimbursement by the Fund, the investment adviser agreed to maintain the expenses of the Fund,
exclusive of management and service fees, at not more than 0.40% of average daily net assets. For the period
ended August 31, 1997, the investment adviser agreed to maintain the expenses of the Fund at not more than
1.75% of the Fund's average daily net assets. The investment adviser and shareholder servicing agent did not
impose any of their fees for the period ended August 31, 1997. If these fees had not been waived and actual
expenses had been over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.03) $(0.15) $ --
Ratios (to average net assets):
Expenses## 2.10% 3.55% 2.81%+
Net investment loss (0.26)% (1.61)% (0.28)%+
* 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 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.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Research International Fund (the Fund) is a diversified series of MFS
Series Trust I (the Trust). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by 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 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 $2,580,360. These loans
were collateralized by cash of $2,597,930 and U.S. Treasury securities of
$90,511. 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. 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.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund may enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. The Fund may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend payments received in additional securities are
recorded on the ex-dividend date in an amount equal to the value of the
security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
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, $14,106 and $30,934 was reclassified to
accumulated undistributed net realized gain on investments and foreign
currency transactions and accumulated undistributed net investment income from
paid-in capital due to differences between book and tax accounting for
currency transactions and Passive Foreign Investment Companies. 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 1.00%
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 0.40% of average daily net assets.
To the extent that the expense reimbursement fee exceeds the Fund's actual
expenses, the excess will be applied to amounts paid by MFS in prior years. At
August 31, 1999, the aggregate unreimbursed expenses owed to MFS by the Fund
amounted to $222,824.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Trustees are currently
not receiving any payments for their services to the Fund.
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
$28,793 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 $2,005,
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 $6, and $1, 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.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended August 31,
1999, were $71, $11,084, and $1,873 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 0.10%. Prior to April 1, 1999, the fee was calculated as a percentage
of the Fund's average daily net assets at an effective annual rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$44,923,858 and $25,616,736, 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 $32,789,463
-----------
Gross unrealized appreciation $ 3,476,058
Gross unrealized depreciation (1,093,311)
-----------
Net unrealized appreciation $ 2,382,747
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
-------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,418,503 $ 15,861,961 470,158 $ 5,458,261
Shares issued to shareholders in
reinvestment of distributions 9,757 104,402 12,095 114,270
Shares reacquired (443,305) (5,020,037) (236,784) (2,697,790)
--------- ------------ -------- ------------
Net increase 984,955 $ 10,946,326 245,469 $ 2,874,741
========= ============ ======== ============
<CAPTION>
Class B Shares
YEAR ENDED AUGUST 31, 1999 PERIOD ENDED AUGUST 31, 1998*
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 802,162 $ 8,858,974 370,461 $ 4,311,689
Shares issued to shareholders in
reinvestment of distributions 6,545 69,831 19 225
Shares reacquired (252,900) (2,765,499) (62,768) (674,423)
--------- ------------ -------- -----------
Net increase 555,807 $ 6,163,306 307,712 $ 3,637,491
========= ============ ======== ============
<CAPTION>
Class C Shares
YEAR ENDED AUGUST 31, 1999 PERIOD ENDED AUGUST 31, 1998*
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 293,111 $ 3,297,967 92,989 $ 1,074,271
Shares issued to shareholders in
reinvestment of distributions 1,735 18,473 -- --
Shares reacquired (58,626) (642,674) (21,562) (257,534)
--------- ------------ -------- -----------
Net increase 236,220 $ 2,673,766 71,427 $ 816,737
========= ============ ======== ============
<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 20,210 $ 228,697 42,939 $ 476,825
Shares issued to shareholders in
reinvestment of distributions 1,775 19,062 12,558 117,015
Shares reacquired (55,359) (611,792) (32,032) (365,764)
--------- ------------ -------- -----------
Net increase (decrease) (33,374) $ (364,033) 23,465 $ 228,076
========= ============ ======== ============
* For the period from the inception of Class B and Class C, January 2, 1998, through August 31, 1998.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $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 $144.
(7) Financial Instruments
The Fund may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At August 31,
1999, the Fund owned the following restricted securities, excluding securities
issued under Rule 144A, constituting .51% of net assets which may not be
publicly sold without registration under the Securities Act of 1933. The Fund
does not have the right to demand that such securities be registered. The
value of these securities is determined by valuations furnished by dealers or
by a pricing service, or if not available, are valued at fair value as
determined in good faith by the Trustees.
DATE OF SHARE/PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- -----------------------------------------------------------------------------
Hong Leong Finance 1/15/96 - 4/8/99 79,000 $122,946 $166,118
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust I and Shareholders of MFS Research
International Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Research International 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 and financial highlights
for the year 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. Our procedures included confirmation of securities
owned as of 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
Research International Fund at August 31, 1999, the results of its operations
for the year then ended, the changes in its net assets and financial
highlights for the year 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 $72,600 AS A CAPITAL GAIN DIVIDEND.
FOR THE YEAR ENDED AUGUST 31, 1999, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 0.37%.
FOR THE YEAR ENDED AUGUST 31, 1999, INCOME FROM FOREIGN SOURCES WAS
$346,933, AND FOREIGN TAXES WITHHELD WERE $42,208.
- --------------------------------------------------------------------------------
<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) RESEARCH INTERNATIONAL 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
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
DIRECTOR OF INTERNATIONAL www.mfs.com
EQUITY RESEARCH
David A. Antonelli*
TREASURER
W. Thomas London*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) RESEARCH INTERNATIONAL 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
MRI-2 10/99 9M 99/299/399/899
