<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) RESEARCH GROWTH
AND INCOME FUND
ANNUAL REPORT o AUGUST 31, 1999
----------------------------------------------------
DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 31)
----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 6
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 15
Notes to Financial Statements ............................................. 22
Independent Auditors' Report .............................................. 28
MFS' Year 2000 Readiness Disclosure ....................................... 30
Trustees and Officers ..................................................... 33
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
- --------------------------------------------------------------------------------
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
[Photo of Alec C. Murray]
Alec C. Murray
For the 12 months ended August 31, 1999, the Fund's Class A shares provided a
total return of 28.64%, Class B shares 27.74%, Class C shares 27.66%, and Class
I shares 28.95%. These returns, which include the reinvestment of any
distributions but exclude the effects of any sales charges, compare to a 39.83%
return over the same period for the Standard & Poor's 500 Composite Index (the
S&P 500), a popular, unmanaged index of common stock total return performance.
The average growth and income fund tracked by Lipper Analytical Services, Inc.,
an independent firm that reports mutual fund performance, returned 31.14% over
the same period.
Q. HOW WOULD YOU DESCRIBE THE MARKET OVER THE PAST YEAR?
A. It has generally been favorable. In the fall of 1998, we were coming off a
pretty severe meltdown brought on by news that the Russian government was
defaulting on its loans and Latin American countries might be devaluing their
currencies. Many investors were shifting out of stocks, and it looked like we
could be headed for a global liquidity crisis. Fortunately, the Federal
Reserve Board stepped in early last fall and lowered short-term interest
rates. This restored investor confidence, and stocks took off in the fourth
quarter of the year. The market continued climbing in the first few months of
1999, with most of the appreciation coming from about 25 growth stocks in the
S&P 500. Then, in April, the market began to broaden thanks to a healthy U.S.
economy and strong international markets. Despite rising interest rates and
some volatility, both economically sensitive and small-company stocks made up
for lost ground during the spring and summer.
Q. WHICH STOCKS DISAPPOINTED DURING THE PERIOD?
A. Supermarkets and drugstores with steady earnings growth looked attractive
last year when only a small group of companies were growing earnings. But as
the earnings of cyclical stocks such as oil and paper started to take off
this past spring, investors began dumping names such as CVS, a drug store
chain, and Kroger, a supermarket chain. Similarly, investors abandoned
consumer stocks for cyclicals. That hurt names like Clorox, whose valuation
(price relative to earnings and other measures) has now fallen so far that it
looks quite attractive. Finally, rising interest rates hurt financial
services stocks, including the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association, both of which we sold.
Q. WHAT FACTORS POSITIVELY IMPACTED PERFORMANCE?
A. A few factors. First, we had a sizable stake in technology, focusing on
well-known, quality companies with strong prospects. Stocks that continued to
do well for us were Microsoft, which is coming out with new products later
this year, and Intel, which is enjoying high margins on its new xeon chip. We
also invested heavily in telecommunications stocks, which have benefited from
the huge growth in voice and data communications on the Internet. Some of our
top performers in this area were service stocks such as Bell Atlantic and
Sprint, as well as equipment manufacturers like Cisco Systems. Second, oil
stocks enjoyed a nice rebound due to rising oil prices, industry
consolidation, and cost cutting. Mobil and Exxon, which are in the process of
merging, as well as BP Amoco all did well for us. Finally, strong stock
selection gave us an edge even in sectors that were not market leaders. Two
examples were Bristol-Myers Squibb, which has a promising line-up of new
drugs, and Tyco International, an industrial conglomerate that has done
especially well with its underseas fiber-optic cable business.
Q. HAVE YOU MADE ANY NOTABLE CHANGES TO THE PORTFOLIO OVER THE PAST YEAR?
A. We try to buy companies with great track records and great franchises when
their stocks are selling at reasonable valuations. A year ago we sold Coca-
Cola because we thought it was overpriced relative to its earnings prospects.
The stock price has since tumbled, giving us an opportunity to start
rebuilding our stake in the company. More recently, we took profits in Lucent
and used the proceeds to increase our investment in Cisco, the leading
supplier of routing and switching equipment to Internet service providers. We
believe Cisco represents a better opportunity than Lucent, given the
company's heavy investment in research and development for next- generation
products. We also sold Pfizer, which was one of the highest- priced stocks in
the pharmaceutical industry. We were concerned that market share gains from
both its Celebrex and Viagra products may have peaked, with no new
blockbuster drugs on the horizon.
Q. WHAT'S YOUR OUTLOOK FOR THE MARKET AND CORPORATE EARNINGS IN PARTICULAR?
A. We are optimistic. So far this year the S&P 500 has had double-digit earnings
growth, with more and more companies participating in the gains. We believe
that strong corporate earnings growth will continue, especially if, as
expected, economic growth here remains healthy, inflation stays low, and
consumer spending remains strong. Cyclical stocks with operations in other
countries should do especially well as economies overseas rebound. We expect
the large-company market leaders we invest in to benefit from this favorable
environment.
/s/ Alec C. Murray
Alec C. Murray
Associate Director of Equity Research
The committee of MFS research analysts is responsible for the day-to-day
management of the Fund under the general supervision of Mr. Murray.
The opinions expressed in this report are those of the Associate Director of
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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FUND FACTS
- --------------------------------------------------------------------------------
OBJECTIVE: SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL, CURRENT
INCOME, AND GROWTH OF INCOME.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 2, 1996
CLASS INCEPTION: CLASS A JANUARY 2, 1996
CLASS B JANUARY 2, 1997
CLASS C JANUARY 2, 1997
CLASS I JANUARY 2, 1997
SIZE: $211.5 MILLION NET ASSETS AS OF AUGUST 31, 1999
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 Research Growth S&P 500
and Income Fund Composite
- Class A Index
- -----------------------------------------------------------
January, 1996 $ 9,425 $10,000
August, 1996 10,490 10,745
August, 1997 14,290 15,113
August, 1998 15,194 16,336
August, 1999 19,546 22,842
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH AUGUST 31, 1999
CLASS A
1 Year 3 Years Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +28.64% +86.33% +107.39%
- --------------------------------------------------------------------------------
Average Annual Total Return +28.64% +23.05% + 22.03%
- --------------------------------------------------------------------------------
SEC Results +21.25% +20.65% + 20.08%
- --------------------------------------------------------------------------------
CLASS B
1 Year 3 Years Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +27.74% +84.30% +105.13%
- --------------------------------------------------------------------------------
Average Annual Total Return +27.74% +22.10% + 21.26%
- --------------------------------------------------------------------------------
SEC Results +23.74% +21.42% + 20.76%
- --------------------------------------------------------------------------------
CLASS C
1 Year 3 Years Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +27.66% +84.03% +104.83%
- --------------------------------------------------------------------------------
Average Annual Total Return +27.66% +22.04% + 21.21%
- --------------------------------------------------------------------------------
SEC Results +26.66% +22.04% + 21.21%
- --------------------------------------------------------------------------------
CLASS I
1 Year 3 Years Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +28.95% +90.28% +111.78%
- --------------------------------------------------------------------------------
Average Annual Total Return +28.95% +23.40% + 22.32%
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COMPARATIVE INDICES
1 Year 3 Years Life*
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Average growth and income fund+ +31.14% +20.18% + 18.80%
- --------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +39.83% +28.58% + 25.27%
- --------------------------------------------------------------------------------
* 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.
B and C results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of B and C. Because
operating expenses of B and C are higher than those of A, B and C performance
generally would have been lower than A performance. The A performance included
in the B and C SEC performance has been adjusted to reflect the CDSC generally
applicable to B and C rather than the initial sales charge generally applicable
to A.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been higher
than A performance. The A performance included in the I performance has been
adjusted to reflect the fact that I have no initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details. All results are
historical and assume the reinvestment of dividends and capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1999
FIVE LARGEST STOCK SECTORS
FINANCIAL SERVICES 18.6%
TECHNOLOGY 14.8%
CONSUMER STAPLES 12.1%
UTILITIES & COMMUNICATIONS 12.0%
HEALTH CARE 10.7%
TOP 10 STOCK HOLDINGS
MICROSOFT CORP. 4.8% BELL ATLANTIC CORP. 2.0%
Computer software and systems company Integrated telecommunications company
TYCO INTERNATIONAL LTD. 3.2% GUIDANT CORP. 1.9%
Security systems, packaging, and Medical device manufacturer
electronic equipment conglomerate
MCI WORLDCOM, INC. 1.9%
BP AMOCO PLC 3.1% Telecommunications company
British oil and petrochemical company
CIGNA CORP. 1.6%
INTEL CORP. 2.9% Multiline insurance company
Semiconductor manufacturer
SPRINT CORP. 1.6%
BRISTOL-MYERS SQUIBB CO. 2.3% Long-distance telephone company
Pharmaceutical products company
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- August 31, 1999
<TABLE>
<CAPTION>
Stocks - 94.2%
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ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 87.7%
Aerospace - 2.6%
General Dynamics Corp. 34,300 $ 2,160,900
Raytheon Co., "B" 15,100 1,028,688
United Technologies Corp. 35,500 2,347,437
------------
$ 5,537,025
- --------------------------------------------------------------------------------------------------
Automotive - 0.5%
Delphi Automotive Systems Corp. 54,800 $ 1,027,500
- --------------------------------------------------------------------------------------------------
Banks and Credit Companies - 5.7%
Bank America Corp. 16,800 $ 1,016,400
Bank of New York Co., Inc. 51,200 1,830,400
BankBoston Corp. 47,000 2,182,562
Capital One Financial Corp. 26,200 989,050
Chase Manhattan Corp. 15,400 1,288,788
PNC Bank Corp. 41,000 2,144,812
US Bancorp 45,100 1,392,463
Wells Fargo Co. 28,100 1,118,731
------------
$ 11,963,206
- --------------------------------------------------------------------------------------------------
Biotechnology - 1.8%
Guidant Corp. 65,900 $ 3,867,506
- --------------------------------------------------------------------------------------------------
Business Machines - 2.6%
Motorola, Inc. 32,600 $ 3,007,350
Sun Microsystems, Inc.* 30,620 2,434,290
------------
$ 5,441,640
- --------------------------------------------------------------------------------------------------
Chemicals - 0.9%
Dow Chemical Co. 17,500 $ 1,988,438
- --------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 4.6%
Microsoft Corp.* 104,800 $ 9,700,550
- --------------------------------------------------------------------------------------------------
Computer Software - Services - 0.8%
EMC Corp.* 28,900 $ 1,734,000
- --------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.8%
Computer Associates International, Inc. $
9,800 553,700
Oracle Corp.* 32,300 1,178,950
------------
$ 1,732,650
- --------------------------------------------------------------------------------------------------
Conglomerates - 3.0%
Tyco International Ltd. 63,422 $ 6,425,441
- --------------------------------------------------------------------------------------------------
Consumer Goods and Services - 8.2%
Avon Products, Inc. 22,700 $ 995,963
Clorox Co. 50,200 2,271,550
Colgate-Palmolive Co. 28,600 1,530,100
Dial Corp. 67,400 1,870,350
Fortune Brands, Inc. 55,700 2,088,750
Galileo International, Inc. 49,800 2,415,300
Gillette Co. 44,500 2,074,812
Newell Rubbermaid, Inc. 51,700 2,119,700
Procter & Gamble Co. 20,200 2,004,850
------------
$ 17,371,375
- --------------------------------------------------------------------------------------------------
Electrical Equipment - 0.9%
Emerson Electric Co. 28,600 $ 1,791,075
- --------------------------------------------------------------------------------------------------
Electronics - 2.7%
Intel Corp. 70,400 $ 5,786,000
- --------------------------------------------------------------------------------------------------
Energy - 0.9%
Sierra Pacific Resources 76,652 $ 1,868,393
- --------------------------------------------------------------------------------------------------
Entertainment - 1.1%
Disney (Walt) Co. 85,000 $ 2,358,750
- --------------------------------------------------------------------------------------------------
Financial Institutions - 2.5%
Associates First Capital Corp., "A" 68,100 $ 2,336,681
Citigroup, Inc. 64,000 2,844,000
------------
$ 5,180,681
- --------------------------------------------------------------------------------------------------
Food and Beverage Products - 3.7%
Coca-Cola Co. 47,200 $ 2,823,150
Keebler Foods Co.* 52,500 1,565,156
Nabisco Holdings Corp., "A" 54,600 2,146,463
Ralston-Ralston Purina Co. 49,300 1,355,750
------------
$ 7,890,519
- --------------------------------------------------------------------------------------------------
Insurance - 7.1%
American International Group, Inc. 29,375 $ 2,722,695
CIGNA Corp. 36,400 3,269,175
Equitable Cos., Inc. 31,200 1,926,600
Hartford Financial Services Group, Inc. 34,320 1,559,415
Hartford Life, Inc., "A" 7,100 308,406
Lincoln National Corp. 45,400 2,128,125
Nationwide Financial Services, Inc., "A" 25,800 941,700
Progressive Corp. 5,000 510,000
ReliaStar Financial Corp. 36,454 1,642,709
------------
$ 15,008,825
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Machinery - 1.4%
Danaher Corp. 49,100 $ 2,884,625
- --------------------------------------------------------------------------------------------------
Medical and Health Products - 4.9%
American Home Products Corp. 69,200 $ 2,871,800
Bristol-Myers Squibb Co. 65,200 4,588,450
Pharmacia & Upjohn, Inc. 53,400 2,790,150
------------
$ 10,250,400
- --------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 3.6%
Cardinal Health, Inc. 40,700 $ 2,594,625
Genentech, Inc.* 1,700 279,225
Medtronic, Inc. 30,500 2,386,625
United HealthCare Corp. 38,000 2,310,875
------------
$ 7,571,350
- --------------------------------------------------------------------------------------------------
Metals and Minerals - 1.0%
Alcoa, Inc. 31,760 $ 2,050,505
- --------------------------------------------------------------------------------------------------
Oil Services - 0.2%
Cooper Cameron Corp.* 12,300 $ 511,988
- --------------------------------------------------------------------------------------------------
Oils - 3.4%
Conoco, Inc. 75,100 $ 2,018,313
Exxon Corp. 31,400 2,476,675
Mobil Corp. 26,300 2,692,462
------------
$ 7,187,450
- --------------------------------------------------------------------------------------------------
Printing and Publishing - 2.2%
Gannett Co., Inc. 30,800 $ 2,092,475
Tribune Co. 27,000 2,519,438
------------
$ 4,611,913
- --------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.9%
Highwoods Properties, Inc. 79,100 $ 1,962,669
- --------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.6%
Wendy's International, Inc. 41,200 $ 1,153,600
- --------------------------------------------------------------------------------------------------
Special Products and Services - 1.9%
Illinois Tool Works, Inc. 27,900 $ 2,174,456
Newport News Shipbuilding, Inc. 2,800 88,025
Xerox Corp. 37,100 1,771,525
------------
$ 4,034,006
- --------------------------------------------------------------------------------------------------
Stores - 4.0%
CVS Corp. 69,300 $ 2,888,944
Dayton Hudson Corp. 39,300 2,279,400
Lowe's Cos., Inc. 39,760 1,799,140
Rite Aid Corp. 79,500 1,470,750
------------
$ 8,438,234
- --------------------------------------------------------------------------------------------------
Supermarkets - 1.5%
Albertsons, Inc. 42,217 $ 2,023,777
Kroger Co.* 51,900 1,200,188
------------
$ 3,223,965
- --------------------------------------------------------------------------------------------------
Telecommunications - 7.0%
Bell Atlantic Corp. 66,800 $ 4,091,500
Cisco Systems, Inc.* 31,200 2,115,750
MCI WorldCom, Inc.* 51,400 3,893,550
Nortel Networks Corp. 7,500 307,969
Sprint Corp. 72,900 3,234,937
Tellabs, Inc.* 20,500 1,221,031
------------
$ 14,864,737
- --------------------------------------------------------------------------------------------------
Utilities - Electric - 2.5%
CMS Energy Corp. 46,810 $ 1,851,921
DQE, Inc. 39,000 1,508,812
PECO Energy Co. 46,800 1,901,250
------------
$ 5,261,983
- --------------------------------------------------------------------------------------------------
Utilities - Gas - 0.9%
Columbia Energy Group 32,850 $ 1,940,203
- --------------------------------------------------------------------------------------------------
Utilities - Telephone - 1.3%
Frontier Corp. 67,700 $ 2,839,169
- --------------------------------------------------------------------------------------------------
Total U.S. Stocks 185,460,371
- --------------------------------------------------------------------------------------------------
Foreign Stocks - 6.5%
Canada - 0.6%
Canadian National Railway Co. (Railroads) 19,500 $ 1,239,469
- --------------------------------------------------------------------------------------------------
Germany - 1.0%
Henkel KGaA, Preferred (Chemicals) 13,000 $ 942,015
Mannesmann AG (Conglomerate) 7,600 1,167,358
------------
$ 2,109,373
- --------------------------------------------------------------------------------------------------
Ireland - 1.1%
Bank of Ireland (Banks and Credit Cos.)* 245,100 $ 2,222,020
- --------------------------------------------------------------------------------------------------
Netherlands - 0.5%
ING Groep N.V. (Financial Services)* 19,422 $ 1,066,314
- --------------------------------------------------------------------------------------------------
Switzerland - 0.3%
Nestle S.A. (Food and Beverage Products) 344 $ 679,950
- --------------------------------------------------------------------------------------------------
United Kingdom - 3.0%
BP Amoco PLC, ADR (Oils) 56,738 $ 6,361,748
Lloyds TSB Group PLC (Banks and Credit Cos.) 597 8,265
------------
$ 6,370,013
- --------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 13,687,139
- --------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $175,724,944) 199,147,510
- --------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 1.4%
- --------------------------------------------------------------------------------------------------
Insurance - 0.1%
Lincoln National Corp., 7.75% 9,100 $ 229,775
- --------------------------------------------------------------------------------------------------
Utilities - Electric - 1.3%
Houston Industries, Inc., 7.00% 26,400 $ 2,719,200
- --------------------------------------------------------------------------------------------------
Total Convertible Preferred Stock (Identified Cost,
$2,410,162) $ 2,948,975
- --------------------------------------------------------------------------------------------------
Short-Term Obligations - 4.5%
- --------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------
Student Loan Marketing Assn., due 9/01/99,
at Amortized Cost $ 9,600 $ 9,600,000
- --------------------------------------------------------------------------------------------------
Other Short-Term Obligations - 1.5%
- --------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio
(Identified Cost, $3,228,274) 3,228,274 $ 3,228,274
- --------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $190,963,380) $214,924,759
Other Assets, Less Liabilities - (1.6)% (3,474,134)
- --------------------------------------------------------------------------------------------------
Net Assets - 100.0% $211,450,625
- --------------------------------------------------------------------------------------------------
*Non-income producing security.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ----------------------------------------------------------------------------
AUGUST 31, 1999
- ----------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $190,963,380) $214,924,759
Cash 4,423
Foreign currency, at value (identified cost, $219) 213
Receivable for Fund shares sold 327,823
Receivable for investments sold 372,245
Dividends and interest receivable 233,087
Deferred organization expenses 582
Other assets 1,687
------------
Total assets $215,864,819
------------
Liabilities:
Payable for Fund shares reacquired $ 379,595
Payable for investments purchased 593,990
Collateral for securities loaned, at value 3,228,274
Payable to affiliates -
Management fee 11,313
Shareholder servicing agent fee 1,740
Distribution and service fee 132,074
Administrative fee 260
Accrued expenses and other liabilities 66,948
------------
Total liabilities $ 4,414,194
------------
Net assets $211,450,625
============
Net assets consist of:
Paid-in capital $171,597,362
Unrealized appreciation on investments and
translation of assets and liabilities
in foreign currencies 23,961,513
Accumulated undistributed net realized gain on
investments and foreign currency transactions 15,910,645
Accumulated net investment loss (18,895)
------------
Total $211,450,625
============
Shares of beneficial interest outstanding 11,901,454
==========
Class A shares:
Net asset value per share
(net assets of $76,634,889 / 4,289,545 shares
of beneficial interest outstanding) $17.87
======
Offering price per share (100 / 94.25) of net asset
value per share) $18.96
======
Class B shares:
Net asset value and offering price per share
(net assets of $112,000,340 / 6,321,189 shares
of beneficial interest outstanding) $17.72
======
Class C shares:
Net asset value and offering price per share
(net assets of $22,073,777 / 1,249,352 shares
of beneficial interest outstanding) $17.67
======
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $741,619 / 41,368 shares
of beneficial interest outstanding) $17.93
======
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 $ 2,602,393
Interest 335,057
Foreign taxes withheld (18,438)
------------
Total investment income $ 2,919,012
------------
Expenses -
Management fee $ 1,252,383
Trustees' compensation 46,826
Shareholder servicing agent fee 205,404
Distribution and service fee (Class A) 246,516
Distribution and service fee (Class B) 1,017,225
Distribution and service fee (Class C) 196,908
Administrative fee 24,553
Custodian fee 76,461
Printing 45,251
Postage 31,602
Auditing fees 42,008
Legal fees 4,370
Amortization of organization expenses 434
Miscellaneous 154,744
------------
Total expenses $ 3,344,685
Reduction of expenses by distributor (70,567)
Fees paid indirectly (16,461)
------------
Net expenses $ 3,257,657
------------
Net investment loss $ (338,645)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 15,992,509
Foreign currency transactions (22,449)
------------
Net realized gain on investments and foreign
currency transactions $ 15,970,060
------------
Change in unrealized appreciation (depreciation) -
Investments $ 25,736,698
Translation of assets and liabilities in
foreign currencies 170
------------
Net unrealized gain on investments and foreign
currency translation $ 25,736,868
------------
Net realized and unrealized gain on investments
and foreign currency $ 41,706,928
------------
Increase in net assets from operations $ 41,368,283
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ (338,645) $ 129,495
Net realized gain on investments and foreign currency
transactions 15,970,060 8,030,468
Net unrealized gain (loss) on investments and foreign
currency translation 25,736,868 (7,349,137)
-------------- --------------
Increase in net assets from operations $ 41,368,283 $ 810,826
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (52,701) $ (61,099)
From net investment income (Class B) -- (3,698)
From net investment income (Class C) -- (249)
From net investment income (Class I) (4,034) (1,850)
From net realized gain on investments and foreign
currency transactions (Class A) (2,375,799) (1,497,660)
From net realized gain on investments and foreign
currency transactions (Class B) (3,430,602) (1,790,478)
From net realized gain on investments and foreign
currency transactions (Class C) (655,481) (331,785)
From net realized gain on investments and foreign
currency transactions (Class I) (43,344) (32,222)
-------------- --------------
Total distributions declared to shareholders $ (6,561,961) $ (3,719,041)
-------------- --------------
Net increase in net assets from Fund share transactions $ 34,164,183 $ 60,493,951
-------------- --------------
Total increase in net assets $ 68,970,505 $ 57,585,736
Net assets:
At beginning of period 142,480,120 84,894,384
-------------- --------------
At end of period (including accumulated net investment loss
of $18,895 and accumulated undistributed net investment
income of $71,813, respectively) $ 211,450,625 $ 142,480,120
============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
--------------------------------------------------- AUGUST 31,
1999 1998 1997 1996*
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $14.42 $14.12 $11.13 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.05 $ 0.09 $ 0.07 $ 0.05
Net realized and unrealized gain on investments
and foreign currency 4.03 0.78 3.02 1.08
------ ------ ------ ------
Total from investment operations $ 4.08 $ 0.87 $ 3.09 $ 1.13
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.01) $(0.03) $(0.06) $ --
From net realized gain on investments and
foreign currency transactions (0.62) (0.54) (0.04) --
------ ------ ------ ------
Total distributions declared to shareholders $(0.63) $(0.57) $(0.10) $ --
------ ------ ------ ------
Net asset value - end of period $17.87 $14.42 $14.12 $11.13
====== ====== ====== ======
Total return(+) 28.64% 6.33% 36.22% 11.30%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.23% 1.29% 1.51% 1.55%+
Net investment income 0.30% 0.56% 0.56% 0.65%+
Portfolio turnover 96% 101% 106% 58%
Net assets at end of period (000 omitted) $76,635 $52,238 $33,567 $492
(S) The distributor voluntarily waived a portion of its distribution fee for all periods indicated below. For the year ended
August 31, 1997, and for the period ended August 31, 1996, 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 0.60% of
average daily net assets. To the extent actual expenses were over/under this limitation and the waiver had not been in place,
the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $ 0.03 $ 0.07 $ 0.07 $(0.13)
Ratios (to average net assets):
Expenses## 1.33% 1.39% 1.55% 4.58%+
Net investment income (loss) 0.20% 0.46% 0.51% (1.86)%+
* 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.
</TABLE>
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 B
- --------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $14.40 $14.11 $12.01
------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.08) $(0.03) $(0.02)
Net realized and unrealized gain on investments and
foreign currency 4.02 0.80 2.13
------ ------ ------
Total from investment operations $ 3.94 $ 0.77 $ 2.11
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.00)+++ $(0.01)
From net realized gain on investments and foreign
currency transactions (0.62) (0.48) --
In excess of net investment income -- -- (0.00)+++
------ ------ ------
Total distributions declared to shareholders $(0.62) $(0.48) $(0.01)
------ ------ ------
Net asset value - end of period $17.72 $14.40 $14.11
====== ====== ======
Total return 27.74% 5.54% 17.56%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.98% 2.03% 2.26%+
Net investment loss (0.45)% (0.19)% (0.22)%+
Portfolio turnover 96% 101% 106%
Net assets at end of period (000 omitted) $112,000 $76,032 $43,069
(S) For the period ended August 31, 1997, subject to reimbursement by the Fund, the investment adviser agreed to maintain
the expenses of the Fund, exclusive of management and distribution and service fees, at not more than 0.60% of average
daily net assets. To the extent actual expenses were over/under this limitation, the net investment loss per share and
the ratios would have been:
Net investment loss $(0.02)
Ratios (to average net assets):
Expenses## 2.30%+
Net investment loss (0.27)%+
* For the period from the inception of Class B, January 2, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund 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.
</TABLE>
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 C
- --------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $14.36 $14.08 $12.00
------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.08) $(0.03) $(0.02)
Net realized and unrealized gain on investments and
foreign currency 4.01 0.80 2.11
------ ------ ------
Total from investment operations $ 3.93 $ 0.77 $ 2.09
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.00)+++ $(0.01)
From net realized gain on investments and foreign
currency transactions (0.62) (0.49) --
In excess of net investment income -- -- (0.00)+++
------ ------ ------
Total distributions declared to shareholders $(0.62) $(0.49) $(0.01)
------ ------ ------
Net asset value - end of period $17.67 $14.36 $14.08
====== ====== ======
Total return 27.66% 5.59% 17.41%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.98% 2.03% 2.26%+
Net investment loss (0.46)% (0.19)% (0.21)%+
Portfolio turnover 96% 101% 106%
Net assets at end of period (000 omitted) $22,074 $13,199 $7,433
(S) For the period ended August 31, 1997, subject to reimbursement by the Fund, the investment adviser agreed to maintain the
expenses of the Fund, exclusive of management and distribution and service fees, at not more than 0.60% of average daily
net assets. To the extent actual expenses were over/under this limitation, the net investment loss per share and the ratios
would have been:
Net investment loss $(0.02)
Ratios (to average net assets):
Expenses## 2.30%+
Net investment loss (0.26)%+
* For the period from the inception of Class C, January 2, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund 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.
</TABLE>
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
- --------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $14.47 $14.16 $12.01
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.09 $ 0.13 $ 0.08
Net realized and unrealized gain on investments and
foreign currency 4.05 0.78 2.11
------ ------ ------
Total from investment operations $ 4.14 $ 0.91 $ 2.19
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.06) $(0.03) $(0.02)
From net realized gain on investments and foreign
currency transactions (0.62) (0.57) --
In excess of net investment income -- -- (0.02)
------ ------ ------
Total distributions declared to shareholders $(0.68) $(0.60) $(0.04)
------ ------ ------
Net asset value - end of period $17.93 $14.47 $14.16
====== ====== ======
Total return 28.95% 6.62% 19.01%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.98% 1.05% 1.19%+
Net investment income 0.56% 0.80% 0.87%+
Portfolio turnover 96% 101% 106%
Net assets at end of period (000 omitted) $742 $1,011 $825
(S) For the period ended August 31, 1997, subject to reimbursement by the Fund, the investment adviser agreed to maintain
the expenses of the Fund, exclusive of management fees, at not more than 0.60% of average daily net assets. To the extent
actual expenses were over/under this limitation, the net investment income per share and the ratios would have been:
Net investment income $ 0.08
Ratios (to average net assets):
Expenses## 1.22%+
Net investment income 0.83%+
* 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.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Research Growth and Income 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 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.
Security Loans - State Street Bank and Trust Company ("State Street"), as agent,
may loan the securities of the Fund to certain brokers (the "Borrowers")
approved by the Fund. The loans are collateralized at all times by cash and/or
U.S. Treasury securities in an amount at least equal to the market value of the
securities loaned. State Street provides the Fund with indemnification against
Borrower default. The Fund bears the risk of loss with respect to the investment
of cash collateral.
At August 31, 1999, the value of securities loaned was $3,134,294. These loans
were collateralized by cash of $3,228,274. 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.
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, $304,672 and $21,455, respectively, were
reclassified to accumulated net investment loss and accumulated undistributed
net realized gain on investments and foreign currency transactions from paid-in
capital due to differences between book and tax accounting. 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 the following annual rates:
First $500 million of average net assets 0.65%
Average net assets in excess of $500 million 0.55%
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 $17,395 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
$79,429 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. The Class A distribution fee is currently being waived on a
voluntary basis and may be imposed at the discretion of MFD. MFD retains the
service fee for accounts not attributable to a securities dealer, which amounted
to $3,244 for the year ended August 31, 1999. Fees incurred under the
distribution plan during the year ended August 31, 1999, were 0.25% 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 $558 and $175 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 both 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 $1,433, $182,176, and $4,517 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an annual rate of 0.10%.
Prior to April 1, 1999, the fee was calculated as a percentage of the Fund's
average daily net assets at an annual rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
U.S. government securities $ 4,284,532 $ 7,165,051
------------ ------------
Investments (non-U.S. government securities) $194,623,111 $169,816,606
------------ ------------
The cost and unrealized appreciation and depreciation in the value of
investments owned by the Fund, as computed on a federal income tax basis, are as
follows:
Aggregate cost $191,513,555
------------
Gross unrealized appreciation $ 30,069,700
Gross unrealized depreciation (6,658,496)
------------
Net unrealized appreciation $ 23,411,204
============
(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 3,645,443 $ 63,306,652 2,962,035 $ 47,997,825
Shares issued to shareholders in
reinvestment of distributions 139,764 2,271,173 103,015 1,453,922
Shares reacquired (3,117,317) (54,205,988) (1,821,122) (30,115,406)
------------ ------------ ------------ ------------
Net increase 667,890 $ 11,371,837 1,243,928 $ 19,336,341
============ ============ ============ ============
<CAPTION>
Class B Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,395,114 $ 41,522,632 2,731,045 $ 42,879,218
Shares issued to shareholders in
reinvestment of distributions 188,815 3,058,783 114,371 1,617,391
Shares reacquired (1,544,500) (26,910,916) (615,639) (9,634,175)
------------ ------------ ------------ ------------
Net increase 1,039,429 $ 17,670,499 2,229,777 $ 34,862,434
============ ============ ============ ============
<CAPTION>
Class C Shares
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 858,873 $ 14,963,918 519,106 $ 8,129,558
Shares issued to shareholders in
reinvestment of distributions 31,558 509,969 16,782 236,637
Shares reacquired (560,128) (9,863,028) (144,753) (2,284,805)
------------ ------------ ------------ ------------
Net increase 330,303 $ 5,610,859 391,135 $ 6,081,390
============ ============ ============ ============
<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 7,169 $ 122,855 29,060 $ 499,438
Shares issued to shareholders in
reinvestment of distributions 2,910 47,375 2,390 33,830
Shares reacquired (38,533) (659,242) (19,876) (319,482)
------------ ------------ ------------ ------------
Net increase (decrease) (28,454) $ (489,012) 11,574 $ 213,786
============ ============ ============ ============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of Fund
shares. Interest is charged to each fund, based on its borrowings, at a rate
equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Fund for the year ended August 31, 1999, was $1,391. The Fund had no
significant borrowings during the year.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of the MFS Series Trust I and the Shareholders of MFS Research
Growth and Income Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Research Growth and Income 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 and financial highlights. Our procedures included confirmation of
securities owned at August 31, 1999, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Research Growth and Income 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.
ERNST & YOUNG LLP
Boston, Massachusetts
October 9, 1999
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>
- --------------------------------------------------------------------------------
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 $8,238,284 AS A CAPITAL GAIN DIVIDEND FOR THE YEAR ENDED
AUGUST 31, 1999.
FOR THE YEAR ENDED AUGUST 31, 1999, THE AMOUNT OF DISTRIBUTIONS FROM INCOME
ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR CORPORATIONS CAME TO
26.78%.
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<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 GROWTH AND INCOME FUND
<TABLE>
<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, For MFS stock and bond market outlooks,
Benchmark Consulting Group, Inc. call toll free:1-800-637-4458 anytime
from a touch-tone telephone.
Arnold D. Scott* - Senior Executive
Vice President, Director, and Secretary, For information on MFS mutual funds, call your
MFS Investment Management financial consultant or, for an information kit,
call toll free:1-800-637-2929 any business day
Jeffrey L. Shames* - Chairman, Chief from 9 a.m. to 5 p.m. Eastern time (or leave a
Executive Officer, and Director, message anytime).
MFS Investment 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 Boston, MA 02107-9906
Officer, Cambridge Nutraceuticals
For general information, call toll free:
Ward Smith - Former Chairman (until 1994), 1-800-225-2606 any business day from 8 a.m. to 8
NACCO Industries (holding company) p.m. Eastern time.
INVESTMENT ADVISER For service to speech- or hearing-impaired, call
Massachusetts Financial Services Company toll free: 1-800-637-6576 any business day from 9
500 Boylston Street a.m. to 5 p.m. Eastern time. (To use this service,
Boston, MA 02116-3741 your phone must be equipped with a
Telecommunications Device for the Deaf.)
DISTRIBUTOR
MFS Fund Distributors, Inc. For share prices, account balances, and exchanges,
500 Boylston Street call toll free: 1-800-MFS-TALK (1-800-637-8255)
Boston, MA 02116-3741 anytime from a touch-tone telephone.
CHAIRMAN AND PRESIDENT WORLD WIDE WEB
Jeffrey L. Shames* www.mfs.com
ASSOCIATE DIRECTOR OF EQUITY RESEARCH
Alec C. Murray*
TREASURER
W. Thomas London*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) RESEARCH GROWTH AND INCOME FUND ------------
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[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
MRG-2 10/99 24M 91/291/391/891
