<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) STRATEGIC
GROWTH FUND
ANNUAL REPORT o AUGUST 31, 1999
----------------------------------------------------
DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 35)
----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 19
Notes to Financial Statements ............................................. 26
Independent Auditors' Report .............................................. 32
MFS' Year 2000 Readiness Disclosure ....................................... 34
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
- --------------------------------------------------------------------------------
<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
For the 12 months ended August 31, 1999, Class A shares of the Fund provided a
total return of 54.40%, Class B shares 53.47%, Class C shares 53.40%, and
Class I shares 55.08%. These returns, which include the reinvestment of any
distributions but exclude the effects of any sales charges, compare to a
39.83% return for the Standard & Poor's 500 Composite Index (the S&P 500), a
popular, unmanaged index of common stock total return performance. These
returns also compare over the same period to 40.56% for the average growth
fund tracked by Lipper Analytical Services, Inc., an independent firm that
reports mutual fund performance.
Q. WHAT PROCESS IS USED TO SELECT STOCKS FOR THE FUND?
A. The Fund currently holds the stocks of more than 100 companies, each of
which is covered by one of our research analysts and has received a top
rating by MFS. The constant contact between MFS analysts and the
managements of each individual holding is a reflection of the depth and
strength of MFS Original Research(R), a proprietary process by which MFS
selects stocks based on original analysis of the many factors that dictate
a company's financial performance.
Q. WHAT ATTRIBUTES DO YOU LOOK FOR IN A STOCK?
A. First, we look for well-run businesses that exhibit strong cash flows and
are poised for growth. We focus on growing industries, and we're attracted
to market leaders. We like value-added companies whose products or services
create a competitive advantage and strong financial returns. In addition,
we believe strong management is crucial; no company can succeed over the
long term without clear vision and solid execution. Last, we try to
identify catalysts that may accelerate a company's earnings growth such as
the introduction of a new product, the geographic expansion of a company's
operations, or a favorable return on acquisitions.
Q. IN WHICH SECTORS ARE YOU FINDING PARTICULARLY ATTRACTIVE OPPORTUNITIES AT
THIS TIME?
A. Technology remains our largest sector. We are very positive about the long-
term benefits that technology offers in boosting global productivity. The
portfolio's core technology holdings have performed well this year. The
portfolio continues to have substantial investments in the software sector
with companies such as Microsoft. In addition, we have turned a significant
amount of our focus toward the semiconductor industry, including
investments in companies such as Intel, Teradyne, LSI Logic, and Analog
Devices. This cyclical group is emerging from the bottom of its cycle
thanks to strengthening demand from the personal computer and
telecommunications sectors and economic stabilization in the Asian
countries. As with other cyclical industries, these firms historically have
had immense earnings leverage upon recovery, reflected in growing profit
margins and improved business visibility. As they emerge from their
doldrums, we believe we may see a rapid acceleration in their revenue and
earnings growth, leading to earnings surprises.
Q. WHAT ARE YOUR THOUGHTS ON ANOTHER RAPIDLY GROWING SECTOR, TELECOMMUNICATIONS?
A. We also find this industry to be particularly promising. There are
tremendous opportunities in the wireless phone market. Growth in the use of
wireless telecommunications is starting to accelerate in the United States
and remains strong in Europe. Another area of telecommunications that is
particularly exciting is data traffic, which has had huge growth driven by
corporate and consumer use of the Internet. Significant recent
telecommunications additions to the Fund include Sprint PCS, Nextel, and
Mannesmann. In addition, MCI WorldCom has been a very large holding in the
Fund for some time.
Q. WHICH INVESTMENTS DIDN'T TURN OUT AS WELL AS YOU WOULD HAVE LIKED?
A. Our health care holdings have been disappointing. The Fund has been
underweighted in large-cap pharmaceutical stocks because we felt their
valuations were overextended. The main problems for these companies were an
overall lull in their new-product development and concerns regarding
potential regulatory reform in the industry. We sought investments that we
felt were immune to these trends, including American Home Products,
Pharmacia & Upjohn, and Bristol-Myers Squibb. Unfortunately, they were
pulled down with the rest of the sector. Retailing was another industry
that struggled over the period. Investors were worried about the effects of
rising interest rates on consumer spending. Nevertheless, we still hold
investments in companies such as Wal-Mart, TJ Maxx, and the supermarket
firm Kroger. That's because their fundamentals remain strong, the companies
have posted very strong growth in their stores' comparable -- or year-over-
year -- sales, and there is a significant amount of consolidation in the
industry. I'd also mention CVS, another retailer, which encountered a
unique problem. Investors were concerned about the effect on CVS's sales
because of competition from drug store Web sites. However, we've held on to
the stock because we believe the company has a very strong Internet
strategy in place going forward.
Q. WHERE DO YOU SEE OPPORTUNITIES AS WE MOVE INTO THE YEAR 2000?
A. There are opportunities in many sectors. Technology should remain a fertile
area, especially software. Historically, software stocks have traded at
significant premiums to other technology subsectors, but that hasn't been
the case this year because of fears related to possible software glitches.
To date, there have been no significant Y2K problems for the group, and we
think once we get beyond the turn of the year the market will come back to
these stocks. As we mentioned, semiconductors and telecommunications also
look promising. In addition, we believe cable will contribute to
performance, as companies such as Comcast, Cox, and Time Warner roll out
digital cable service. We believe that we may see an acceleration in the
cash-flow growth for these companies.
Looking more broadly, valuations in the stock market remain high. Our
challenge remains finding companies whose extended valuations are justified
or that are selling at particularly attractive prices.
/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 current 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.
<PAGE>
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PORTFOLIO MANAGERS' PROFILES
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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 1999. 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 SENIOR 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) 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 AND SENIOR VICE PRESIDENT IN 1999. PRIOR TO
JOINING MFS, HE WORKED FOR SEVEN YEARS AT A MAJOR INVESTMENT FIRM AS AN
EQUITY ANALYST. HE IS A GRADUATE OF THE UNIVERSITY OF PENNSYLVANIA AND HAS
AN M.B.A. 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 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, 1996
CLASS INCEPTION: CLASS A JANUARY 2, 1996
CLASS B APRIL 11, 1997
CLASS C APRIL 11, 1997
CLASS I JANUARY 2, 1997
SIZE: $1.4 BILLION 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, 1996, through August 31, 1999. Index information is from January 1,
1996.)
MFS S&P 500
Strategic Composite
Growth Fund - Class A Index
--------------------- ---------
January, 1996 $ 9,425 $10,000
August, 1996 11,555 10,745
August, 1997 18,435 15,113
August, 1998 20,845 16,336
August, 1999 32,183 22,842
<PAGE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH AUGUST 31, 1999
CLASS A
1 Year 3 Years Life*
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Cumulative Total Return +54.40% +178.52% +241.47%
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Average Annual Total Return +54.40% + 40.70% + 39.83%
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SEC Results +45.52% + 37.95% + 37.59%
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CLASS B
1 Year 3 Years Life*
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Cumulative Total Return +53.47% +173.87% +235.77%
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Average Annual Total Return +53.47% + 39.91% + 39.19%
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SEC Results +49.47% + 39.40% + 38.85%
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CLASS C
1 Year 3 Years Life*
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Cumulative Total Return +53.40% +174.27% +236.26%
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Average Annual Total Return +53.40% + 39.98% + 39.25%
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SEC Results +52.40% + 39.98% + 39.25%
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CLASS I
1 Year 3 Years Life*
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Cumulative Total Return +55.08% +180.72% +244.16%
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Average Annual Total Return +55.08% + 41.07% + 40.13%
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COMPARATIVE INDICES
1 Year 3 Years Life*
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Average growth fund+ +40.56% + 22.36% + 20.01%
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Standard & Poor's 500 Composite Index# +39.83% + 28.58% + 25.27%
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* For the period from the commencement of the Fund's investment operations,
January 2, 1996, through August 31, 1999. Index information is from January 1,
1996.
+ 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.
A results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of B for periods prior to the inception of A. Because operating expenses
of B are greater than those of A, A performance generally would have been
higher than B performance. The B performance included within the A SEC
performance has been adjusted to reflect the maximum initial sales charge
generall applicable to A rather than the CDSC generally applicable to B.
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
I performance has been adjusted to reflect the fact that I have no initial
sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details.
All results are historical and assume the reinvestment of dividends and
capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
<PAGE>
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1999
FIVE LARGEST STOCK SECTORS
Technology 36.7%
Leisure 14.1%
Conglomerate, Special
Products/Services 11.8%
Utilities & Communications 8.4%
Health Care 7.9%
<TABLE>
TOP 10 STOCK HOLDINGS
<S> <C>
MICROSOFT CORP. 6.3% INTEL CORP. 2.1%
Computer software and systems company Semiconductor manufacturer
TYCO INTERNATIONAL LTD. 4.7% TIME WARNER, INC. 2.0%
Security systems, packaging, and Publishing and entertainment company
electronic equipment conglomerate
BMC SOFTWARE, INC. 2.8% COMPUTER ASSOCIATES INTERNATIONAL, INC. 1.9%
Computer software company Computer software company
MCI WORLDCOM, INC. 2.4% ORACLE CORP. 1.9%
Telecommunications company Database software developer and manufacturer
CISCO SYSTEMS, INC. 2.2% CVS CORP. 1.8%
Computer network developer Drug store chain
</TABLE>
The portfolio is actively managed, and current holdings may be different.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- August 31, 1999
Stocks - 97.0%
<CAPTION>
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ISSUER SHARES VALUE
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<S> <C> <C>
U.S. Stocks - 92.3%
Advertising - 1.2%
Interpublic Group of Companies, Inc. 100,600 $ 3,986,275
Omnicom Group, Inc. 29,700 2,238,637
Outdoor Systems, Inc.* 50,400 1,628,550
Young & Rubicam, Inc. 184,200 8,219,925
--------------
$ 16,073,387
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Aerospace - 0.9%
General Dynamics Corp. 28,100 $ 1,770,300
Raytheon Co., "A" 41,400 2,778,975
United Technologies Corp. 121,864 8,058,257
--------------
$ 12,607,532
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Banks and Credit Companies - 1.0%
Bank of New York Co., Inc. 42,900 $ 1,533,675
Chase Manhattan Corp. 29,800 2,493,887
Fleet Financial Group, Inc. 7,031 279,922
Mellon Bank Corp. 22,800 760,950
Providian Financial Corp. 77,000 5,977,125
Wells Fargo Co. 78,025 3,106,370
--------------
$ 14,151,929
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Biotechnology - 0.9%
Guidant Corp. 207,800 $ 12,195,262
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Broadcasting - 0.1%
Westwood One, Inc.* 21,735 $ 834,081
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Business Machines - 4.7%
Affiliated Computer Services, Inc., "A"* 297,926 $ 12,736,336
Motorola, Inc. 163,600 15,092,100
Seagate Technology, Inc.* 226,100 7,503,694
Sun Microsystems, Inc.* 159,146 12,652,107
Texas Instruments, Inc. 199,500 16,371,469
--------------
$ 64,355,706
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Business Services - 2.9%
At Home Corp.* 15,000 $ 601,875
Ceridian Corp.* 154,681 4,331,068
Computer Sciences Corp.* 146,400 10,129,050
Concord EFS, Inc.* 41,800 1,551,825
DST Systems, Inc.* 76,281 5,072,686
First Data Corp. 414,750 18,249,000
--------------
$ 39,935,504
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Computer Software - Personal Computers - 6.7%
America Online, Inc.* 43,300 $ 3,953,831
Autodesk, Inc. 18,600 427,800
Intuit, Inc.* 39,800 3,564,588
Microsoft Corp.* 917,400 84,916,837
--------------
$ 92,863,056
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Computer Software - Services - 0.9%
EMC Corp.* 142,700 $ 8,562,000
Yahoo, Inc.* 27,200 4,012,000
--------------
$ 12,574,000
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Computer Software - Systems - 10.4%
BMC Software, Inc.* 686,262 $ 36,929,474
Cadence Design Systems, Inc.* 418,940 5,708,057
Citrix Systems, Inc.* 20,605 1,174,485
Computer Associates International, Inc. 440,270 24,875,255
Compuware Corp.* 765,552 23,110,101
Etec Systems, Inc.* 33,250 1,463,000
Gadzoox Networks, Inc.* 700 63,263
Oracle Corp.* 706,525 25,788,162
Rational Software Corp.* 260,000 7,036,250
Siebel Systems, Inc.* 71,500 4,911,156
SunGard Data Systems, Inc.* 361,800 9,045,000
Synopsys, Inc.* 11,000 615,313
VERITAS Software Corp.* 54,700 3,240,975
--------------
$ 143,960,491
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Conglomerates - 5.0%
AlliedSignal, Inc. 69,100 $ 4,232,375
Kansas City Southern Industries, Inc. 32,000 1,482,000
Tyco International Ltd. 622,128 63,029,343
--------------
$ 68,743,718
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Consumer Goods and Services - 2.0%
Clorox Co. 53,200 $ 2,407,300
Dial Corp. 29,791 826,700
Galileo International, Inc. 215,100 10,432,350
Gillette Co. 83,200 3,879,200
Newell Rubbermaid, Inc. 243,300 9,975,300
Service Corp. International 18,450 254,841
--------------
$ 27,775,691
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Containers - 0.2%
Sealed Air Corp.* 47,600 $ 2,796,500
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Electrical Equipment - 0.7%
General Electric Co. 60,300 $ 6,772,444
Honeywell, Inc. 25,900 2,939,650
--------------
$ 9,712,094
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Electronics - 8.6%
Altera Corp.* 274,570 $ 11,566,261
Analog Devices, Inc.* 389,400 20,054,100
Applied Materials, Inc.* 42,600 3,027,262
Atmel Corp.* 347,500 13,661,094
Cypress Semiconductor Corp.* 91,000 2,104,375
Flextronics International Ltd.* 32,200 1,889,738
Helix Technology Corp. 24,000 678,000
Integrated Device Technology, Inc.** 59,400 1,158,300
Intel Corp. 338,184 27,794,497
LSI Logic Corp.* 328,700 18,653,725
Micron Technology, Inc.* 24,000 1,789,500
Novellus Systems, Inc.* 35,800 1,930,963
Photronics, Inc.* 15,000 358,125
Teradyne, Inc.* 145,000 9,869,062
Xilinx, Inc.* 50,000 3,496,875
--------------
$ 118,031,877
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Entertainment - 7.7%
CBS Corp.* 360,088 $ 16,924,136
Clear Channel Communications, Inc.* 117,173 8,209,433
Comcast Corp., "A" 257,300 8,394,412
Cox Radio, Inc., "A"* 12,348 654,444
Disney (Walt) Co. 4,250 117,938
Fox Entertainment Group, Inc.* 7,450 171,816
Gemstar International Group Ltd.* 20,800 1,435,200
Harrah's Entertainment, Inc.* 237,652 5,347,170
Hearst-Argyle Television, Inc.* 43,800 1,108,688
Infinity Broadcasting Corp.* 755,500 20,445,719
MediaOne Group, Inc.* 192,750 12,673,312
Mirage Resorts, Inc.* 67,586 882,842
Time Warner, Inc. 445,172 26,404,264
Univision Communications, Inc., "A"* 45,315 3,341,981
--------------
$ 106,111,355
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Financial Institutions - 4.0%
American Express Co. 47,132 $ 6,480,650
Associates First Capital Corp., "A" 424,452 14,564,009
CIT Group, Inc., "A" 2,667 63,508
Citigroup, Inc. 309,450 13,751,184
Federal Home Loan Mortgage Corp. 50,100 2,580,150
Federal National Mortgage Assn 44,462 2,762,202
Federated Investors, Inc., "A" 27,300 501,637
Franklin Resources, Inc. 6 216
Goldman Sachs Group, Inc. 6,200 370,838
Morgan Stanley Dean Witter & Co. 115,437 9,905,938
State Street Corp. 75,343 4,511,162
--------------
$ 55,491,494
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Food and Beverage Products - 0.2%
Anheuser-Busch Cos., Inc. 27,200 $ 2,094,400
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Insurance - 1.9%
American International Group, Inc. 88,193 $ 8,174,389
Aon Corp. 29,000 967,875
CIGNA Corp. 111,300 9,996,131
Gallagher (Arthur J.) & Co. 50,000 2,731,250
Hartford Financial Services Group, Inc. 11,900 540,706
Lincoln National Corp. 93,080 4,363,125
--------------
$ 26,773,476
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Internet - 0.7%
Amazon.com, Inc.* 49,300 $ 6,131,688
Ebay, Inc.* 26,000 3,264,625
VeriSign, Inc.* 5,600 606,550
--------------
$ 10,002,863
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Machinery - 0.7%
Danaher Corp. 141,900 $ 8,336,625
Deere & Co., Inc. 30,700 1,193,463
--------------
$ 9,530,088
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Medical and Health Products - 4.0%
American Home Products Corp. 301,668 $ 12,519,222
Bausch & Lomb, Inc. 178,600 11,798,762
Baxter International, Inc. 42,100 2,823,331
Boston Scientific Corp.* 58,300 1,978,556
Bristol-Myers Squibb Co. 200,072 14,080,067
Pharmacia & Upjohn, Inc. 209,400 10,941,150
Schering Plough Corp. 11,000 578,188
--------------
$ 54,719,276
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Medical and Health Technology and Services - 2.3%
Cardinal Health, Inc. 185,700 $ 11,838,375
Health Management Associates, Inc., "A"* 143,443 1,147,544
HEALTHSOUTH Corp.* 377,329 3,089,381
Medtronic, Inc. 54,600 4,272,450
United HealthCare Corp. 196,727 11,963,461
--------------
$ 32,311,211
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Oil Services - 0.1%
Schlumberger Ltd. 18,000 $ 1,201,500
- ------------------------------------------------------------------------------------------------------
Oils - 0.7%
Apache Corp. 75,000 $ 3,412,500
Conoco, Inc. 164,900 4,431,687
Exxon Corp. 30,674 2,419,412
--------------
$ 10,263,599
- ------------------------------------------------------------------------------------------------------
Photographic Products - 0.1%
Polaroid Corp. 26,500 $ 718,813
- ------------------------------------------------------------------------------------------------------
Pollution Control
Republic Services, Inc.* 19,700 $ 214,238
- ------------------------------------------------------------------------------------------------------
Printing and Publishing - 1.2%
Gannett Co., Inc. 124,416 $ 8,452,512
Tribune Co. 84,200 7,856,912
--------------
$ 16,309,424
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 2.1%
Cendant Corp.* 21,409 $ 384,024
Marriott International, Inc., "A" 16,100 551,425
McDonald's Corp. 346,346 14,330,066
Promus Hotel Corp.* 122,310 3,554,634
Wendy's International, Inc. 388,100 10,866,800
--------------
$ 29,686,949
- ------------------------------------------------------------------------------------------------------
Special Products and Services - 0.3%
Royal Caribbean Cruises Ltd. 95,500 $ 4,470,594
- ------------------------------------------------------------------------------------------------------
Stores - 5.1%
Circuit City Stores, Inc. 14,300 $ 614,900
CVS Corp. 565,596 23,578,283
Home Depot, Inc. 38,624 2,360,892
Lowe's Cos., Inc. 85,400 3,864,350
Office Depot, Inc.* 384,531 4,013,542
Rite Aid Corp. 189,000 3,496,500
TJX Cos., Inc. 529,200 15,280,650
Wal-Mart Stores, Inc. 400,376 17,741,662
--------------
$ 70,950,779
- ------------------------------------------------------------------------------------------------------
Supermarkets - 1.9%
Kroger Co.* 731,564 $ 16,917,417
Safeway, Inc.* 198,700 9,251,969
--------------
$ 26,169,386
- ------------------------------------------------------------------------------------------------------
Technology - 0.7%
Galileo Technology Ltd.* 23,700 1,235,363
National Semiconductor Corp.* 307,600 8,670,475
--------------
$ 9,905,838
- ------------------------------------------------------------------------------------------------------
Telecommunications - 11.6%
AT&T Corp.* 189,700 $ 6,070,400
CIENA Corp.* 15,000 526,875
Cisco Systems, Inc.* 437,524 29,669,596
Corning, Inc. 130,000 8,645,000
Cox Communications, Inc.* 175,000 6,507,812
General Instrument Corp.* 86,500 4,254,719
Global TeleSystems Group, Inc.* 196,800 6,359,100
JDS Uniphase Corp. 9,175 973,123
Lucent Technologies, Inc. 23,648 1,514,950
MCI WorldCom, Inc.* 429,124 32,506,143
Net2Phone, Inc.* 950 80,750
Network Solutions, Inc.* 10,000 576,250
Nextel Communications, Inc.* 278,125 16,079,102
Nortel Networks Corp. 83,800 3,441,038
NTL, Inc.* 28,000 2,749,250
QUALCOMM, Inc.* 16,000 3,075,000
Scientific-Atlanta, Inc. 141,300 7,241,625
Sprint Corp. (PCS Group)* 281,350 16,810,662
Tellabs, Inc.* 108,700 6,474,444
Winstar Communications, Inc.* 119,400 6,067,013
--------------
$ 159,622,852
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.4%
AES Corp.* 89,000 $ 5,401,188
- ------------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.4%
Frontier Corp. 138,610 $ 5,812,957
- ------------------------------------------------------------------------------------------------------
Total U.S. Stocks $1,274,373,108
- ------------------------------------------------------------------------------------------------------
Foreign Stocks - 4.7%
Finland - 0.5%
Nokia Corp., ADR (Telecommunications) 77,900 6,494,913
- ------------------------------------------------------------------------------------------------------
Germany - 0.9%
Mannesmann AG (Conglomerate) 76,150 $ 11,696,621
- ------------------------------------------------------------------------------------------------------
Ireland - 0.3%
Elan Corp. PLC, ADR (Health Products)* 139,100 $ 4,459,894
- ------------------------------------------------------------------------------------------------------
Japan - 0.1%
Hitachi (Electronics) 196,000 $ 1,991,640
- ------------------------------------------------------------------------------------------------------
Netherlands - 0.5%
Akzo Nobel N.V. (Chemicals) 56,100 $ 2,614,163
STMicroelectronics N.V. (Electronics) 57,100 3,811,425
--------------
$ 6,425,588
- ------------------------------------------------------------------------------------------------------
Sweden - 0.2%
Ericsson LM, ADR (Telecommunications) 79,100 $ 2,575,694
- ------------------------------------------------------------------------------------------------------
Switzerland - 0.1%
Nestle S.A. (Food and Beverage Products) 622 $ 1,229,444
- ------------------------------------------------------------------------------------------------------
United Kingdom - 2.1%
BP Amoco PLC, ADR (Oils) 170,975 $ 19,170,572
Colt Telecom Group PLC (Telecommunications)* 42,000 3,680,250
Freeserve Ordinary PLC (Computer Software -
Systems)* 9,450 27,670
Orange PLC (Telecommunications) 286,700 4,840,747
Shire Pharmaceuticals Group PLC (Medical and Health
Technology and Services) 68,800 1,720,000
--------------
$ 29,439,239
- ------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 64,313,033
- ------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,161,776,056) $1,338,686,141
- ------------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 0.2%
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ------------------------------------------------------------------------------------------------------
Insurance
Lincoln National Corp. 1.85% $25,300 $ 531,300
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.2%
Houston Industries, Inc., 7.00% 21,400 $ 2,204,200
- ------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stock (Identified Cost, $2,173,739) $ 2,735,500
- ------------------------------------------------------------------------------------------------------
Convertible Bond - 0.1%
- ------------------------------------------------------------------------------------------------------
Financial Services - 0.1%
Bell Atlantic Financial Services, Inc., 4.25s,
2005## (Identified Cost $437,191) $ 394 $ 418,625
- ------------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.6%
- ------------------------------------------------------------------------------------------------------
Associates Corp. of North America, due 9/01/99 $12,100 $ 12,100,000
Federal Agricultural Mortgage Corp., due 9/02/99 9,700 9,698,648
Federal Home Loan Bank, due 9/21/99 14,300 14,260,484
- ------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 36,059,132
- ------------------------------------------------------------------------------------------------------
Other Short-Term Obligations - 4.0%
- ------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio
(Identified Cost, $55,579,939) 55,579,939 $ 55,579,939
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,256,026,057) $1,433,479,337
Other Assets, Less Liabilities - (3.9%) (53,635,853)
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,379,843,484
- ------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
AUGUST 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,256,026,057) $1,433,479,337
Cash 8,535
Receivable for Fund shares sold 8,208,941
Receivable for investments sold 9,101,025
Interest and dividends receivable 554,541
Deferred organization expenses 582
Other assets 4,618
--------------
Total assets $1,451,357,579
--------------
Liabilities:
Payable for Fund shares reacquired $ 1,091,668
Payable for investments purchased 13,704,921
Collateral for securities loaned, at value 55,579,939
Payable to affiliates -
Management fee 84,609
Shareholder servicing agent fee 11,281
Distribution and service fee 852,221
Administrative fee 1,614
Accrued expenses and other liabilities 187,842
--------------
Total liabilities $ 71,514,095
--------------
Net assets $1,379,843,484
==============
Net assets consist of:
Paid-in capital $1,135,392,065
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 177,454,465
Accumulated undistributed net realized gain on
investments and foreign currency transactions 67,015,849
Accumulated net investment loss (18,895)
---------------
Total $1,379,843,484
==============
Shares of beneficial interest outstanding 49,407,107
==========
Class A shares:
Net asset value per share
(net assets of $512,993,899 / 18,207,097 shares of
beneficial interest outstanding) $28.18
======
Offering price per share (100 / 94.25 of net asset
value per share) $29.90
======
Class B shares:
Net asset value and offering price per share
(net assets of $656,216,856 / 23,643,615 shares of
beneficial interest outstanding) $27.75
======
Class C shares:
Net asset value and offering price per share
(net assets of $185,784,028 / 6,680,105 shares of
beneficial interest outstanding) $27.81
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $24,848,701 / 876,290 shares of
beneficial interest outstanding) $28.36
======
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 loss:
Income -
Dividends $ 4,015,271
Interest 2,476,876
Foreign taxes withheld (58,338)
------------
Total investment income $ 6,433,809
------------
Expenses -
Management fee $ 7,076,430
Trustees' compensation 42,312
Shareholder servicing agent fee 996,099
Distribution and service fee (Class A) 1,225,522
Distribution and service fee (Class B) 4,442,942
Distribution and service fee (Class C) 1,243,558
Administrative fee 125,268
Custodian fee 278,504
Printing 98,656
Postage 168,911
Auditing fees 35,006
Legal fees 5,110
Amortization of organization expenses 434
Miscellaneous 846,060
------------
Total expenses $ 16,584,812
Fees paid indirectly (38,544)
------------
Net expenses $ 16,546,268
------------
Net investment loss $(10,112,459)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 79,987,269
Foreign currency transactions (2,029)
------------
Net realized gain on investments and
foreign currency transactions $ 79,985,240
------------
Change in unrealized appreciation (depreciation) -
Investments $220,381,007
Translation of assets and liabilities in
foreign currencies (15,571)
------------
Net unrealized gain on investments and foreign
currency translation $220,365,436
------------
Net realized and unrealized gain on investments
and foreign currency $300,350,676
------------
Increase in net assets from operations $290,238,217
============
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- --------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (10,112,459) $ (2,562,560)
Net realized gain on investments and foreign currency
transactions 79,985,240 18,965,380
Net unealized gain (loss) on investments and foreign
currency translation 220,365,436 (49,616,495)
-------------- ------------
Increase (decrease) in net assets from operations $ 290,238,217 $(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 $ 672,666,668 $413,615,724
-------------- ------------
Total increase in net assets $ 943,784,158 $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 $18,895 and $23,310, respectively) $1,379,843,484 $436,059,326
============== ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
--------------------------------------------- AUGUST 31,
1999 1998 1997 1996*
- ----------------------------------------------------------------------------------------------------------------------------
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) $(0.18) $(0.14) $(0.11) $ 0.02
Net realized and unrealized gain on
investments and foreign currency 10.29 2.32 6.67 2.24
------ ------ ------ ------
Total from investment operations $10.11 $ 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 $28.18 $18.79 $16.79 $12.26
====== ====== ====== ======
Total return(+) 54.40% 13.07% 59.54% 22.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.38% 1.36% 1.29% 0.44%+
Net investment income (loss) (0.69)% (0.66)% (0.82)% 0.23%+
Portfolio turnover 112% 56% 82% 104%
Net assets at end of period (000 omitted) $512,994 $168,536 $21,699 $10,145
(S) For the periods ended August 31, 1997, and 1996, subject to reimbursement by the Fund, the investment adviser
voluntarily agreed to maintain expenses of the Fund, exclusive of management and distribution fees, at not more than
0.50% of average daily net assets. Prior to August 31, 1998, the investment adviser and the distributor voluntarily
waived a portion of their management fee and distribution fee, respectively, for certain of the periods indicated. If
these fees had been incurred by the Fund and/or if actual expenses were over this limitation, the net investment loss
per share and the ratios would have been:
Net investment loss $ -- $(0.15) $(0.15) $(0.05)
Ratios (to average net assets):
Expenses## -- 1.43% 1.59% 1.84%+
Net investment loss -- (0.72)% (1.12)% (0.66)%+
* 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 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>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
---------------------------- AUGUST 31,
1999 1998 1997*
- --------------------------------------------------------------------------------------------------------------------
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) $(0.35) $(0.28) $(0.09)
Net realized and unrealized gain on investments and
foreign currency 10.18 2.30 4.31
------ ------ ------
Total from investment operations $ 9.83 $ 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 $27.75 $18.59 $16.75
====== ====== ======
Total return 53.47% 12.12% 33.76%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.03% 2.08% 2.02%+
Net investment loss (1.34)% (1.36)% (1.46)%+
Portfolio turnover 112% 56% 82%
Net assets at end of period (000 omitted) $656,217 $196,519 $15,735
(S) For the period ended August 31, 1997, subject to reimbursement by the Fund, the investment adviser voluntarily agreed
to maintain expenses of the Fund, exclusive of management and distribution fees, at not more than 0.50% of average daily
net assets. To the extent actual expenses were over this limitation, the net investment loss per share and the ratios
would have been:
Net investment loss $ -- $ -- $(0.12)
Ratios (to average net assets):
Expenses## -- -- 2.51%+
Net investment loss -- -- (1.95)%+
* 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 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>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
---------------------------- AUGUST 31,
1999 1998 1997*
- --------------------------------------------------------------------------------------------------------------------
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) $(0.35) $(0.28) $(0.09)
Net realized and unrealized gain on investments and
foreign currency 10.20 2.31 4.33
------ ------ ------
Total from investment operations $ 9.85 $ 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 $27.81 $18.63 $16.77
====== ====== ======
Total return 53.40% 12.20% 33.92%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.03% 2.08% 2.04%+
Net investment loss (1.34)% (1.37)% (1.48)%+
Portfolio turnover 112% 56% 82%
Net assets at end of period (000 omitted) $185,784 $52,668 $6,048
(S) For the period ended August 31, 1997, subject to reimbursement by the Fund, the investment adviser voluntarily agreed to
maintain expenses of the Fund, exclusive of management and distribution fees, at not more than 0.50% of average daily
net assets. The investment adviser and the distributor voluntarily waived their fees for the periods indicated. 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)%+
* 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 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>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
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 $18.85 $16.80 $12.08
------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.08) $(0.08) $(0.04)
Net realized and unrealized gain on investments and
foreign currency 10.34 2.31 4.76
------ ------ ------
Total from investment operations $10.26 $ 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 $28.36 $18.85 $16.80
====== ====== ======
Total return 55.08% 13.32% 39.24%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.03% 1.08% 0.94%+
Net investment loss (0.34)% (0.37)% (0.40)%+
Portfolio turnover 112% 56% 82%
Net assets at end of period (000 omitted) $24,849 $18,335 $13,462
(S) For the period ended August 31, 1997, subject to reimbursement by the Fund, the investment adviser voluntarily agreed to
maintain expenses of the Fund, exclusive of management and distribution fees, at not more than 0.50% of average daily
net assets. To the extent actual expenses were over this limitation, the net investment loss per share and the ratios
would have been:
Net investment loss $ -- $ -- $(0.06)
Ratios (to average net assets):
Expenses## -- -- 1.14%+
Net investment loss -- -- (0.60)%+
* 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 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 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.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of 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. 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 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.
Deferred Trustee Compensation - Effective July 24, 1999, under a Deferred
Compensation Plan (the Plan) independent Trustees may elect to defer receipt
of all or a portion of their annual compensation. Deferred amounts are treated
as though equivalent dollar amounts had been invested in shares of the fund or
other MFS funds selected by the Trustee. Deferred amounts represent an
unsecured obligation of the fund until distributed in accordance with the
Plan.
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 $54,260,819. These
loans were collateralized by cash of $55,579,939, and U.S. Treasury securities
of $325,621. 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 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. 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, $10,116,874 was reclassified from
accumulated undistributed net realized gain on investments and foreign
currency transactions to accumulated net investment loss due to differences
between book and tax accounting for currency transactions and the offset of
net investment loss against short-term capital gains. This change had no
effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class Differences in per share dividend rates are
generally due to differences in separate class expenses. Class B shares will
convert to Class A shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the Fund's average daily net.
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
$12,010, for the year ended August 31, 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
$947,877 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 $60,778
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 $2,949 and $780 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 $21,759, $891,029, and $68,909 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
$1,611,411,544 and $1,003,590,759, 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 $1,272,232,175
--------------
Gross unrealized appreciation $ 204,705,329
Gross unrealized depreciation (43,458,167)
--------------
Net unrealized appreciation $ 161,247,162
==============
(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>
Class A Shares
<CAPTION>
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 15,943,773 $411,479,246 10,667,794 $224,279,952
Shares issued to shareholders in
reinvestment of distributions 283,116 6,745,030 26,387 457,569
Shares reacquired (6,990,984) (175,904,817) (3,015,275) (65,422,263)
---------- ------------ ---------- ------------
Net increase 9,235,905 $242,319,459 7,678,906 $159,315,258
========== ============ ========== ============
</TABLE>
<TABLE>
Class B Shares
<CAPTION>
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 16,880,873 $431,590,084 11,268,558 $234,302,856
Shares issued to shareholders in
reinvestment of distributions 324,370 7,646,316 25,134 433,643
Shares reacquired (4,132,169) (105,206,007) (1,662,490) (35,110,261)
---------- ------------ ---------- ------------
Net increase 13,073,074 $334,030,393 9,631,202 $199,626,238
========== ============ ========== ============
</TABLE>
<TABLE>
Class C Shares
<CAPTION>
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,551,263 $141,563,695 2,790,666 $ 57,991,612
Shares issued to shareholders in
reinvestment of distributions 79,491 1,876,845 7,901 136,530
Shares reacquired (1,778,448) (44,256,563) (331,348) (6,905,904)
---------- ------------ ---------- ------------
Net increase 3,852,306 $ 99,183,977 2,467,219 $ 51,222,238
========== ============ ========== ============
</TABLE>
<TABLE>
Class I Shares
<CAPTION>
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 310,485 $ 7,959,479 277,623 $ 5,707,697
Shares issued to shareholders in
reinvestment of distributions 32,260 771,016 8,787 152,637
Shares reacquired (439,164) (11,597,656) (114,869) (2,408,344)
---------- ------------ ---------- ------------
Net increase (decrease) (96,419) $ (2,867,161) 171,541 $ 3,451,990
========== ============ ========== ============
</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 $7,311. The Fund had no
significant borrowings during the year.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust I and Shareholders of MFS Strategic Growth
Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Strategic Growth Fund (the Fund), including the schedule of portfolio
investments, as of August 31, 1999, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and the financial highlights for each
of the three years in the period then ended, and for the period from January
2, 1996 (commencement of operations) to August 31, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of August 31, 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
Strategic Growth Fund at August 31, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the three
years in the period then ended, and for the period from January 2, 1996
(commencement of operations) to August 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
October 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 $33,342,489 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 7.89%.
- --------------------------------------------------------------------------------
<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>
<TABLE>
MFS(R) STRATEGIC GROWTH FUND
<S> <C>
TRUSTEES ASSISTANT TREASURERS
Richard B. Bailey* - Private Investor; Mark E. Bradley*
Former Chairman and Director (until 1991), Ellen Moynihan*
MFS Investment Management James O. Yost*
Marshall N. Cohan - Private Investor SECRETARY
Stephen E. Cavan*
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital; ASSISTANT SECRETARY
Professor of Surgery, Harvard Medical School James R. Bordewick, Jr.*
The Hon. Sir J. David Gibbons, KBE - Chief CUSTODIAN
Executive Officer, Edmund Gibbons Ltd.; State Street Bank and Trust Company
Chairman, Colonial Insurance Company, Ltd.
AUDITORS
Abby M. O'Neill - Private Investor Ernst & Young LLP
Walter E. Robb, III - President and Treasurer, INVESTOR INFORMATION
Benchmark Advisors, Inc.; President, Benchmark For MFS stock and bond market outlooks, call
Consulting Group, Inc. toll free: 1-800-637-4458 anytime from a
touch-tone telephone.
Arnold D. Scott* - Senior Executive Vice
President, Director, and Secretary, MFS For information on MFS mutual funds, call your
Investment Management financial consultant or, for an information
kit, call toll free: 1-800-637-2929 any
Jeffrey L. Shames* - Chairman, Chief Executive business day from 9 a.m. to 5 p.m. Eastern time
Officer, and Director, MFS Investment (or leave a message anytime).
Management
Investor Service
J. Dale Sherratt - President, Insight MFS Service Center, Inc.
Resources, Inc.; Managing General Partner, P.O. Box 2281
Wellfleet Investments; Chief Executive Officer, Boston, MA 02107-9906
Cambridge Nutraceuticals Ward Smith - Former
Chairman (until 1994), NACCO Industries For general information, call toll free:
1-800-225-2606 any business day from 8 a.m. to
INVESTMENT ADVISER 8 p.m. Eastern time.
Massachusetts Financial Services Company
500 Boylston Street For service to speech- or hearing-impaired,
Boston, MA 02116-3741 call toll free: 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time. (To use
DISTRIBUTOR this service, your phone must be equipped with
MFS Fund Distributors, Inc. a Telecommunications Device for the Deaf.)
500 Boylston Street
Boston, MA 02116-3741 For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
CHAIRMAN AND PRESIDENT (1-800-637-8255) anytime from a touch-tone
Jeffrey L. Shames* telephone.
PORTFOLIO MANAGERS World Wide Web
S. Irfan Ali* www.mfs.com>
Stephen Pesek*
TREASURER
W. Thomas London*
*Affiliated with the Investment Adviser
</TABLE>
<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 Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MSG-2 10/99 121M 90/290/390/890
