<PAGE>
[Logo] MFS(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
MFS(R) EQUITY
INCOME FUND
SEMIANNUAL REPORT o FEBRUARY 28, 1999
[Graphic Omitted]
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 31)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 23
MFS' Year 2000 Readiness Disclosure ....................................... 29
Trustees and Officers ..................................................... 33
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKS THE 75TH ANNIVERSARY OF MFS' INVENTION OF
THE MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER
OF INVESTING TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR
COLLEGE DEGREES, HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL
FUNDS. WE COULDN'T. AND WHILE THE
YEARS AHEAD WILL BRING A NUMBER OF [GRAPHIC OMITTED]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE
WILL HELP GUIDE A NEW GENERATION OF
INVESTORS INTO THE FUTURE.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
Since we launched Massachusetts Investors Trust, the nation's first mutual
fund, 75 years ago, MFS has weathered numerous market and economic cycles,
from the occasional recession to long periods of growth and prosperity.
Throughout that time, we have tried to give investors a realistic assessment
of the investment markets and, when necessary, to sound a note of caution --
even when market conditions appear quite favorable.
Although the equity markets have overcome last year's volatility, we still
think stocks are overdue for a correction that will rid them of the excesses
that have developed. Perhaps the most glaring measure of those excesses is the
high level of valuations, that is, the amount equity investors are paying for
each dollar of earnings. By mid-March, the price-to-earnings (P/E) ratio of
the average stock in the Standard & Poor's 500 Composite Index, a popular,
unmanaged index of common stock total return performance, was almost 28%
higher than it was a year ago. While P/E ratios keep going up, earnings have
essentially been flat, and we believe they are likely to stay that way, for a
few months at least. This leaves stock prices vulnerable to negative events
such as a domestic or international crisis, a sudden increase in interest
rates, or a slowing economy, any of which could lead to lower corporate
earnings.
While risks in the overall market have increased, one industry calls for
particular attention. For several months, Internet-related stocks have
exhibited extreme price volatility. The Internet's potential impact on the way
individuals and companies communicate and conduct business is certainly great,
but we feel that most of the recent run-up in the share prices of these
companies is unjustified. Many of them have not yet reported any profits, and
there is no way of knowing which of today's "hot" Internet stocks will be
successful -- or even in existence -- a few years from now. Therefore, we
think the frenzy surrounding even the best-known Internet stocks is purely
speculative.
However, there are some established companies offering Internet-related products
and services that may generate revenue. These include companies that provide
networking equipment, that make servers to store information, and that help
customers make better use of Internet services. Because they already have
profitable businesses as well as the potential to use the Internet to increase
their opportunities to generate revenue, these companies have been the focus of
our research efforts.
Although we think valuations for the overall equity market, and especially for
Internet stocks, are excessive, we see this situation as an opportunity for
our portfolio managers to capitalize on MFS(R) Original Research(SM). This is
a fundamental, company-by-company process that helps us find investments that
we believe are most likely to achieve long-term earnings growth, through both
negative and positive market cycles.
We also rely heavily on our research process when investing in the fixed-
income markets. Last year, turmoil in emerging markets and volatility in the
U.S. stock market helped create a "flight to quality," meaning that investors
moved toward U.S. Treasury securities, which are seen as carrying less risk,
and away from almost everything else. As a result, yields on non-Treasury
securities increased, while yields on Treasuries fell. Some of these yield
spreads, or differentials, have narrowed, but they have not returned to the
levels seen before last year's market turmoil. We think this has created
opportunities for our portfolio managers to find attractive yields in
these markets.
Individual investors, meanwhile, should keep in mind that the tremendous
increases in the broad stock market averages of the past several years
are a historical aberration and do not necessarily indicate future market
performance. If they are not already diversified across a range of
investments, including growth stock funds, value-oriented funds, and fixed-
income funds, investors may want to talk to their financial advisers about
developing well-diversified portfolios with the potential to weather
unexpected changes in the markets. Doing so may help investors more
effectively meet their long-term financial goals. We appreciate your
confidence and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
March 16, 1999
<PAGE>
Management Review and Outlook
[Photo of Lisa B. Nurme]
Lisa B. Nurme
For the six months ended February 28, 1999, Class A shares of the Fund
provided a total return of 14.56%, Class B shares 14.20%, Class C shares
14.16%, and Class I shares 15.01%. These returns, which include the
reinvestment of distributions but exclude the effects of any sales charges,
compare to a 30.18% return for the Standard & Poor's 500 Composite Index (the
S&P 500) for the same period. The S&P 500 is a popular, unmanaged index of
common stock total return performance. The Fund's returns also compare to a
16.66% return for the average equity income fund as reported by Lipper
Analytical Services, Inc., an independent firm that tracks mutual fund
performance.
Q. COULD YOU TALK ABOUT THE FUND'S RECENT PERFORMANCE?
A. The Fund has underperformed the S&P 500 because many of the sectors that
were hurt in last fall's market correction, such as technology and some of
the more aggressive financial services stocks, bounced back. We've had
little exposure to either of these sectors because of our long-term
conservative strategy, which helped protect the portfolio during the
correction but limited appreciation during the recovery. Also, while some
of the more defensive sectors, such as electric and gas utilities, did well
during the correction, they have not participated in the recovery. At a
time when everyone is focused on technology and growth companies, few
investors are interested in utilities.
Q. HOW WOULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT OF THE PAST SIX MONTHS?
A. There were two distinct phases to the period. First, as I mentioned, we had
the tail end of the stock market correction that lasted from the middle of
July to the beginning of October. That was a good period for the Fund
because the kinds of defensive companies in which we invest, such as
utilities and energy companies, declined less than half as much as the S&P
500. But then the market had a sharp, quick, and intense recovery. That was
difficult for the Fund because our holdings did not rise as fast as the S&P
500, and the more aggressive sectors in which the Fund does not invest. So,
what helped the Fund during the correction hurt during the subsequent
recovery.
Q. DID YOU MAKE ANY SIGNIFICANT CHANGES TO HOLDINGS DURING THIS PERIOD?
A. We added a little to basic materials because there are signs that, in the
near term, the economy may be stronger than we expected. For example, we've
added chemical companies such as Dow Chemical and paper companies such as
Bowater. These stocks had been driven down to a point at which, as value
investors, we thought they were worth considering. We also added a little
in energy, including Royal Dutch Shell and British Petroleum, for the same
reason. Oil prices were at a 12-year low, and energy company earnings
declined throughout 1998. However, by the second half of 1999, we think the
earnings picture for these companies should improve as oil prices increase.
We like to buy stocks like these when the commodity is entirely out of
favor, which has been the case for oil. Plus, the oil companies have pulled
back significantly on exploration and production spending, which should
help correct the oversupply problem.
Q. HAVE YOU MADE ANY OTHER CHANGES?
A. We pared back the portfolio's exposure to consumer staples stocks such as
food, beverage, and household products. That was a case of taking profits
from companies whose prices had, in our view, become fully valued. We have
also trimmed health care, specifically, drug stocks. These stocks did very
well in 1998, and unit demand for drugs has been incredibly strong.
However, we think we are nearing the end of a rising cycle for the prices
of these stocks, and we don't think their valuations, that is, their prices
relative to their earnings growth prospects, are as attractive now.
Q. COULD YOU TALK ABOUT SOME STOCKS THAT HAVE PERFORMED PARTICULARLY WELL?
A. The telecommunications sector has been phenomenal for a lot of reasons, but
especially due to the growth of the Internet and data traffic. Data
transmission is driving the results for companies such as Sprint, SBC
Communications, Bell Atlantic, AT&T, and Century Telephone. In fact, while
the Fund does not have direct exposure to technology stocks,
telecommunications companies are exposed to the fast-growing data
transmission business, including the Internet. Also, consolidation among
telecommunications companies has helped their stocks as companies are able
to combine operations and cut costs.
Q. WHAT ABOUT SOME STOCKS THAT HAVEN'T PERFORMED SO WELL?
A. There are a number of examples in the energy sector, such as Unocal, which
has been impacted by falling oil prices. Also, all types of electric and
gas utilities have underperformed, in part because of the mild
winter, but also because of the split in the market. Investors have favored
technology and large, blue-chip companies and have shown little interest in
utilities and other less richly valued sectors. Now, however, we have begun
to see some consolidation deals that have helped the Fund. In February, for
example, Scana Corp. bid for Public Service of North Carolina, and Dominion
Resources made a proposal for Consolidated Natural Gas. These deals haven't
been completed yet, but they may result in cost savings, as well as
conversion-related business opportunities, and the stocks have reacted
positively.
Q. COULD YOU TALK ABOUT THE FUND'S OVERSEAS EXPOSURE?
A. We have reduced our exposure in recent months, from almost 9% of assets at
the end of the year to about 5 1/2% now. However, this reflects that our
outlook for particular companies has changed or that we have taken profits,
rather than having changed our view on overseas markets. For example, while
we made good money on Sanofi, we weren't positive on its proposed merger
with Synthelabo, another French drug company, so we sold the stock. We have
become more selective when it comes to overseas investments. If the global
economy slows, certainly Europe will slow too.
Q. WHAT DO YOU SEE AS THE BIGGEST RISK TO THIS FUND?
A. A continuation of the runaway market. Right now, investors only seem to
care about technology and are very insensitive to valuations, that is, the
high prices being paid for earnings. In such an environment, this Fund,
which is managed conservatively, is not positioned to benefit. However, as
I said earlier, we expect this Fund to perform relatively
well as we get back to a market in which prices are more reflective of
stocks' underlying values.
/s/ Lisa B. Nurme
Lisa B. Nurme
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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LISA B. NURME IS SENIOR VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
AND PORTFOLIO MANAGER OF MFS(R) EQUITY INCOME FUND AND THE EQUITY INCOME
SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS. SHE IS ALSO A
PORTFOLIO MANAGER OF MFS(R) TOTAL RETURN FUND, MFS(R) TOTAL RETURN
SERIES (PART OF MFS(R) VARIABLE INSURANCE TRUST(SM)), AND THE TOTAL
RETURN SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS.
SHE JOINED MFS IN 1987 AS A RESEARCH ANALYST. SHE WAS NAMED INVESTMENT
OFFICER IN 1990, ASSISTANT VICE PRESIDENT IN 1991, VICE PRESIDENT IN
1992, PORTFOLIO MANAGER IN 1995, AND SENIOR VICE PRESIDENT IN 1998. MS.
NURME IS A GRADUATE OF THE UNIVERSITY OF NORTH CAROLINA, WHERE SHE WAS
ELECTED TO PHI BETA KAPPA.
ALL EQUITY PORTFOLIO MANAGERS BEGAN THEIR CAREERS AT MFS INVESTMENT
MANAGEMENT(R) AS RESEARCH ANALYSTS. OUR PORTFOLIO MANAGERS ARE SUPPORTED
BY AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS(R)
ORIGINAL RESEARCH(SM), A COMPANY-ORIENTED, BOTTOM-UP PROCESS OF
SELECTING SECURITIES.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: PRIMARILY SEEKS REASONABLE INCOME, WITH A SECONDARY
OBJECTIVE OF CAPITAL APPRECIATION.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 2, 1996
CLASS INCEPTION: CLASS A JANUARY 2, 1996
CLASS B NOVEMBER 4, 1997
CLASS C NOVEMBER 5, 1997
CLASS I JANUARY 2, 1997
SIZE: $58.2 MILLION NET ASSETS AS OF FEBRUARY 28, 1999
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH FEBRUARY 28, 1999
CLASS A
6 Months 1 Year 3 Years 10 Years/Life*
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Cumulative Total Return +14.56% +8.25% +85.04% +91.82%
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Average Annual Total Return -- +8.25% +22.77% +22.90%
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SEC Results -- +2.02% +20.37% +20.62%
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CLASS B
6 Months 1 Year 3 Years 10 Years/Life*
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Cumulative Total Return +14.20% +7.68% +83.60% +90.29%
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Average Annual Total Return -- +7.68% +22.45% +22.59%
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SEC Results -- +3.68% +21.78% +21.98%
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CLASS C
6 Months 1 Year 3 Years 10 Years/Life*
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Cumulative Total Return +14.16% +7.62% +83.47% +90.19%
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Average Annual Total Return -- +7.62% +22.42% +22.57%
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SEC Results -- +6.62% +22.42% +22.57%
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CLASS I
6 Months 1 Year 3 Years 10 Years/Life*
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Cumulative Total Return +15.01% +8.85% +85.14% +91.92%
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Average Annual Total Return -- +8.85% +22.79% +22.92%
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*For the period from the commencement of the Fund's investment operations,
January 2, 1996, through February 28, 1999.
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 5.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C shares
("C") have no initial sales charge but, like B, have higher annual fees and
expenses than A. C SEC results reflect the 1% CDSC applicable to shares
redeemed within 12 months. Class I shares ("I") have no sales charge or Rule
12b-1 fees and are only available to certain institutional investors.
B and C results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of A for periods prior to the inception of B and C.
Because operating expenses of B and C are higher than those of A, B and C
performance generally would have been lower than A performance. The A
performance included in the B and C SEC performance has been adjusted to
reflect the CDSC generally applicable to B and C rather than the initial sales
charge generally applicable to A.
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.
<PAGE>
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1999
FIVE LARGEST STOCK SECTORS
UTILITIES & COMMUNICATIONS 37.4%
FINANCIAL SERVICES 19.1%
ENERGY 9.5%
CONSUMER STAPLES 8.4%
INDUSTRIAL GOODS & SERVICES 6.3%
TOP 10 STOCK HOLDINGS
BP AMOCO PLC 2.6% HARTFORD FINANCIAL SERVICES GROUP, INC. 1.7%
British oil and petrochemical Multiline insurance company
company
SPRINT CORP. 1.6%
GTE CORP. 1.9% Long-distance telephone company
Telecommunications company
SBC COMMUNICATIONS, INC. 1.6%
HORMEL FOODS CORP. 1.8% Integrated telecommunications company
Food products company
PHILIP MORRIS COS., INC. 1.4%
LINCOLN NATIONAL CORP. 1.8% Tobacco, food, and beverage conglomerate
Insurance company
RELIASTAR FINANCIAL CORP. 1.3%
CITIGROUP, INC. 1.8% Life and health insurance company
Diversified financial services
company
The portfolio is actively managed, and holdings are subject to change.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- February 28, 1999
STOCKS -- 86.3%
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ISSUER SHARES VALUE
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U.S. Stocks - 80.6%
Aerospace - 0.9%
Raytheon Co., "A" 10,226 $ 540,700
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Automotive - 1.1%
TRW, Inc. 13,587 $ 641,986
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Banks and Credit Companies - 3.6%
BankAmerica Corp. 9,298 $ 607,276
Mellon Bank Corp. 8,254 558,177
National City Corp. 7,509 524,691
Wells Fargo Co. 10,395 382,016
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$ 2,072,160
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Building - 0.7%
Sherwin Williams Co. 16,270 $ 391,497
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Business Machines - 1.2%
Xerox Corp. 12,191 $ 672,791
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Chemicals - 1.7%
Dow Chemical Co. 6,193 $ 609,236
Du Pont (E.I.) de Nemours & Co., Inc. 7,219 370,425
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$ 979,661
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Conglomerates - 0.8%
Eastern Enterprises 12,792 $ 491,693
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Consumer Goods and Services - 2.8%
Gillette Co. 4,582 $ 245,710
International Flavours 14,225 585,892
Philip Morris Cos., Inc. 20,034 783,830
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$ 1,615,432
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Electrical Equipment - 1.9%
Cooper Industries, Inc. 16,172 $ 707,525
Emerson Electric Co. 7,292 418,834
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$ 1,126,359
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Entertainment - 0.9%
Disney (Walt) Co. 14,737 $ 518,558
MediaOne Group, Inc.* 128 6,976
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$ 525,534
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Financial Institutions - 2.4%
Citigroup, Inc. 16,456 $ 966,790
Federal Home Loan Mortgage Corp. 7,500 441,562
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$ 1,408,352
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Food and Beverage Products - 4.4%
Archer-Daniels-Midland Co. 36,966 $ 559,111
Hormel Foods Corp. 27,079 974,844
Keebler Foods Co.* 14,530 566,670
Smucker (J. M.) Co. 23,456 477,916
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$ 2,578,541
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Forest and Paper Products - 2.0%
Bowater, Inc. 13,540 $ 570,373
Georgia-Pacific Corp. 444 32,523
Weyerhaeuser Co. 10,370 578,127
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$ 1,181,023
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Insurance - 7.8%
Equitable Cos., Inc. 8,590 $ 580,362
Hartford Financial Services Group, Inc. 16,921 914,791
Jefferson Pilot Corp. 8,784 595,665
Lincoln National Corp. 10,292 974,524
ReliaStar Financial Corp. 16,294 739,340
Transamerica Corp. 9,916 719,530
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$ 4,524,212
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Machinery - 1.0%
Federal Signal Corp. 23,792 $ 557,625
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Manufacturing - 0.5%
Illinois Tool Works, Inc. 4,577 $ 314,669
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Medical and Health Products - 1.1%
American Home Products Corp. 10,441 $ 621,240
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Oils - 4.8%
Conoco, Inc., "A"* 21,950 $ 445,859
Exxon Corp. 9,769 650,249
Mobil Corp. 7,997 665,250
Texaco, Inc. 11,736 546,458
Unocal Corp. 17,631 496,974
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$ 2,804,790
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Railroads - 0.5%
Burlington Northern Santa Fe Railway Co. 8,137 $ 269,538
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Real Estate Investment Trusts - 3.1%
CarrAmerica Realty Corp. 11,519 $ 247,658
Equity Residential Properties Trust 10,921 447,761
Federal Realty Investment Trust 7,883 173,919
First Industrial Realty Trust, Inc. 10,291 266,279
Kilroy Realty Corp. 9,470 204,197
Mid-America Apartment Communities, Inc. 5,903 131,342
TriNet Corporate Realty Trust, Inc. 13,156 331,367
-----------
$ 1,802,523
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Restaurants and Lodging - 2.1%
McDonald's Corp. 7,307 $ 621,095
Wendy's International, Inc. 23,949 573,279
-----------
$ 1,194,374
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Special Products and Services - 1.9%
Aquarion Co. 17,161 $ 580,256
USEC, Inc. 38,824 550,816
-----------
$ 1,131,072
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Stores - 1.7%
American Stores Co. 7,970 $ 268,988
Dayton Hudson Corp. 11,768 736,235
-----------
$ 1,005,223
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Supermarkets - 1.1%
Kroger Co.* 9,855 $ 637,495
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Telecommunications - 8.8%
AT&T Corp. 2,936 $ 241,119
Bell Atlantic Corp. 10,175 584,427
Century Telephone Enterprises, Inc. 4,178 257,991
Cincinnati Bell, Inc. 30,726 606,838
Frontier Corp. 17,251 619,958
GTE Corp. 16,051 1,041,309
SBC Communications, Inc. 16,113 851,975
Sprint Corp. 10,451 896,826
-----------
$ 5,100,443
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Utilities - Electric - 9.2%
Carolina Power & Light Co. 11,025 $ 439,622
CMS Energy Corp. 5,506 227,811
DPL, Inc. 12,439 221,570
DQE, Inc. 12,297 469,592
FirstEnergy Corp. 16,929 495,173
Florida Progress Corp. 10,579 424,482
GPU, Inc. 15,189 605,661
Illinova Corp. 12,316 292,505
NIPSCO Industries, Inc. 8,148 211,339
Peco Energy Co. 14,057 498,145
Pinnacle West Capital Corp. 15,307 552,965
Public Service Enterprise Group 16,028 609,064
Scana Corp. 12,120 284,820
-----------
$ 5,332,749
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Utilities - Gas - 12.6%
AGL Resources, Inc. 19,445 $ 370,670
Atmos Energy Corp. 18,922 454,128
Berkshire Energy Resources 10,764 218,644
Coastal Corp. 18,010 576,320
Colonial Gas Co. 16,923 580,670
Columbia Energy Group 11,701 590,901
Connecticut Energy Group 21,490 560,083
Consolidated Natural Gas Co. 9,644 529,817
El Paso Energy Corp. 19,718 718,475
Fall River Gas Co. 16,175 283,063
National Fuel Gas Co. 7,232 291,540
NICOR, Inc. 10,936 417,619
Providence Energy Corp. 12,392 255,585
Public Service Company, Inc. 22,439 661,950
Sonat, Inc. 10,969 277,653
UGI Corp. 11,644 236,519
Washington Gas Light Co. 12,265 293,593
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$ 7,317,230
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Total U.S. Stocks $46,838,912
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Foreign Stocks - 5.7%
Bermuda - 0.7%
Xl Capital Ltd (Insurance) 6,588 $ 403,515
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France - 0.6%
Thomson CSF (Aerospace and Defense) 11,370 $ 338,395
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Netherlands - 1.3%
Akzo Nobel N.V. (Chemicals) 9,131 $ 347,749
Royal Dutch Petroleum Co., ADR (Oils) 10,129 444,410
-----------
$ 792,159
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United Kingdom - 3.1%
BP Amoco PLC, ADR (Oils) 16,506 $ 1,403,010
SmithKline-Beecham PLC, ADR
(Medical and Health Products) 5,487 390,263
-----------
$ 1,793,273
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Total Foreign Stocks $ 3,327,342
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Total Stocks (Identified Cost, $49,382,469) $50,166,254
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CONVERTIBLE BONDS -- 2.5%
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Principal Amount
(000 Omitted)
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U.S. Bonds - 1.5%
Business Machines - 0.5%
Xerox Corp., 0s, 2018 $ 495 $ 297,000
-----------
$ 297,000
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Telecommunications - 1.0%
Bell Atlantic Financial Services, Inc.,
4.25s, 2005## $ 535 $ 585,825
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Total U.S. Bonds $ 882,825
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Foreign Bonds - 1.0%
Switzerland - 1.0%
Swiss Life Finance Ltd. (Finance),
1.5s, 2003 $ 418 $ 591,470
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Total Convertible Bonds
(Identified Cost, $1,345,975) $ 1,474,29
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Convertible Preferred Stocks - 5.7%
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Shares
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Consumer Goods and Services - 0.7%
Newell Financial Trust I, 5.25% 3,813 $ 201,136
Newell Financial Trust I, 5.25%## 3,793 200,081
-----------
$ 401,217
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Entertainment - 1.5%
MediaOne Group, Inc., 6.25% 3,495 $ 271,518
Reliant Energy, Inc., 7.00% 5,451 596,884
-----------
$ 868,402
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Insurance - 0.5%
Lincoln National Corp., 7.75% 12,042 $ 314,597
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Telecommunications - 1.2%
Qwest Trends Trust, 5.75%## 12,587 $ 692,285
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Utilities - Electric - 1.8%
NIPSCO Industries, Inc., 7.75% 11,214 $ 554,392
Texas Utilities Co., 3.315% 1,668 74,122
Texas Utilities Co., 9.25% 8,032 419,170
-----------
$ 1,047,684
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Total Convertible Preferred Stocks
(Identified Cost, $2,925,241) $ 3,324,185
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SHORT-TERM OBLIGATIONS -- 5.0%
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
due 3/01/99, at Amortized Cost $2,880 $ 2,880,000
- -----------------------------------------------------------------------------
Total Investments
(Identified Cost, $56,533,685) $57,844,734
Other Assets, Less Liabilities - 0.5% 310,511
- -----------------------------------------------------------------------------
Net Assets - 100.0% $58,155,245
- -----------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- -----------------------------------------------------------------------------
FEBRUARY 28, 1999
- -----------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $56,533,685) $57,844,734
Cash 19,102
Foreign currency, at value (identified cost, $287) 280
Receivable for Fund shares sold 503,938
Receivable for investments sold 546,184
Interest and dividends receivable 140,602
Deferred organization expenses 801
Other assets 269
-----------
Total assets $59,055,910
-----------
Liabilities:
Payable for Fund shares reacquired $ 48,826
Payable for investments purchased 812,374
Payable to affiliates -
Management fee 2,848
Shareholder servicing agent fee 535
Distribution and service fee 32,279
Administrative fee 71
Accrued expenses and other liabilities 3,732
-----------
Total liabilities $ 900,665
-----------
Net assets $58,155,245
===========
Net assets consist of:
Paid-in capital $56,167,543
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 1,311,007
Accumulated undistributed net realized gain on investments
and foreign currency transactions 553,165
Accumulated undistributed net investment income 123,530
-----------
Total $58,155,245
===========
Shares of beneficial interest outstanding 3,658,253
=========
Class A shares:
Net asset value per share
(net assets of $20,644,807 / 1,296,332 shares of
beneficial interest outstanding) $15.93
======
Offering price per share (100 / 94.25 of net asset value
per share) $16.90
======
Class B shares:
Net asset value and offering price per share
(net assets of $28,060,633 / 1,767,261 shares of
beneficial interest outstanding) $15.88
======
Class C shares:
Net asset value and offering price per share
(net assets of $7,706,675 / 485,615 shares of beneficial
interest outstanding) $15.87
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $1,743,130 / 109,045 shares of beneficial
interest outstanding) $15.99
======
On sales of $50,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 28, 1999
- -------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 610,684
Interest 58,152
Foreign taxes withheld (162)
----------
Total investment income $ 668,674
----------
Expenses -
Management fee $ 137,655
Shareholder servicing agent fee 26,156
Distribution and service fee (Class A) 28,363
Distribution and service fee (Class B) 114,827
Distribution and service fee (Class C) 27,289
Administrative fee 2,290
Custodian fee 12,406
Printing 3,506
Postage 7,607
Auditing fees 13,644
Amortization of organization expenses 215
Registration fees 43,920
Miscellaneous 4,178
----------
Total expenses $ 422,056
Fees paid indirectly (3,343)
Preliminary reduction of expenses by investment adviser (18,810)
----------
Net expenses $ 399,903
----------
Net investment income $ 268,771
----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 666,652
Foreign currency transactions (2,986)
----------
Net realized gain on investments and foreign
currency transactions $ 663,666
----------
Change in unrealized appreciation (depreciation) -
Investments $4,176,759
Translation of assets and liabilities in foreign
currencies (164)
----------
Net unrealized gain on investments and foreign
currency translation $4,176,595
----------
Net realized and unrealized gain on investments
and foreign currency $4,840,261
----------
Increase in net assets from operations $5,109,032
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 268,771 $ 144,338
Net realized gain on investments and foreign currency
transactions 663,666 604,001
Net unrealized gain (loss) on investments and
foreign currency translation 4,176,595 (3,025,615)
------------ ------------
Increase (decrease) in net assets from operations $ 5,109,032 $ (2,277,276)
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (102,335) $ (37,223)
From net investment income (Class B) (87,325) (21,410)
From net investment income (Class C) (21,518) (3,686)
From net investment income (Class I) (9,714) (13,832)
From net realized gain on investments and foreign currency
transactions (Class A) (234,405) (60,087)
From net realized gain on investments and foreign currency
transactions (Class B) (338,766) --
From net realized gain on investments and foreign currency
transactions (Class C) (81,870) --
From net realized gain on investments and foreign currency
transactions (Class I) (16,658) (109,502)
------------ ------------
Total distributions declared to shareholders $ (892,591) $ (245,740)
------------ ------------
Net increase in net assets from Fund share transactions $ 21,394,442 $ 33,593,325
------------ ------------
Total increase in net assets $ 25,610,883 $ 31,070,309
Net assets:
At beginning of period 32,544,362 1,474,053
------------ ------------
At end of period (including accumulated undistributed net
investment income of $123,530 and $75,651, respectively) $ 58,155,245 $ 32,544,362
============ ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS PERIOD
ENDED YEAR ENDED AUGUST 31, ENDED
FEBRUARY 28, --------------------------------- AUGUST 31,
1999 1998 1997 1996*
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $14.20 $14.82 $11.07 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.12 $ 0.22 $ 0.22 $ 0.13
Net realized and unrealized gain on
investments and foreign currency### 1.94 1.07 3.91 0.94
------ ------ ------ ------
Total from investment operations $ 2.06 $ 1.29 $ 4.13 $ 1.07
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.11) $(0.20) $(0.16) $ --
From net realized gain on investments and
foreign currency transactions (0.22) (1.71) (0.22) --
------ ------ ------ ------
Total distributions declared to
shareholders $(0.33) $(1.91) $(0.38) $ --
------ ------ ------ ------
Net asset value - end of period $15.93 $14.20 $14.82 $11.07
====== ====== ====== ======
Total return(+) 14.56%++ 9.50% 38.05% 10.70%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.36%+ 1.46% 1.54% 1.50%+
Net investment income 1.57%+ 1.45% 1.75% 1.83%+
Portfolio turnover 54% 89% 118% 56%
Net assets at end of period (000 omitted) $20,645 $11,146 $510 $477
* 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.
### The per share amount is not in accordance with the net realized and unrealized gain (loss) for the year ended August 31,
1998 because of the timing of sales of Fund shares and the amount of per share realized and unrealized gains and losses
at such time.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
(S) Effective November 1, 1997, subject to reimbursement by the Fund, the investment adviser agreed to maintain expenses of
the Fund, exclusive of management, distribution, and service fees, at not more than 0.40% of average daily net assets.
Prior to November 1, 1997, subject to reimbursement by the Fund, the investment adviser agreed to maintain the expenses
of the Fund, exclusive of management, distribution, and service fees, at not more than 1.50% of average daily net assets.
To the extent actual expenses were over these limitations, the net investment income (loss) per share and the ratios
would have been:
Net investment income (loss) $ 0.11 $ 0.11 $ 0.02 $(0.06)
Ratios (to average net assets):
Expenses## 1.44%+ 2.20% 3.40% 4.67%+
Net investment income (loss) 1.49%+ 0.70% (0.15)% (0.78)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------
Six Months Ended Period Ended
February 28, 1999 August 31, 1998*
(Unaudited)
- ------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $14.16 $13.61
------ ------
Income from investment operations# -
Net investment income(S) $ 0.07 $ 0.10
Net realized and unrealized gain on investments and
foreign currency### 1.93 0.47
------ ------
Total from investment operations $ 2.00 $ 0.57
------ ------
Less distributions declared to shareholders -
From net investment income $(0.06) $(0.02)
From net realized gain on investments and foreign
currency transactions (0.22) --
------ ------
Total distributions declared to shareholders $(0.28) $(0.02)
------ ------
Net asset value - end of period $15.88 $14.16
====== ======
Total return 14.20%++ 4.20%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.01%+ 2.11%+
Net investment income 0.91%+ 0.66%+
Portfolio turnover 54% 89%
Net assets at end of period (000 omitted) $28,060 $16,786
* For the period from the inception of Class B, November 4, 1997, through August 31, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without
reduction for this expense offset arrangement.
### The per share amount is not in accordance with the net realized and unrealized gain (loss) for the period ended August
31, 1998 because of the timing of sales of Fund shares and the amount of per share realized and unrealized gains and
losses at such time.
(S) Subject to reimbursement by the Fund, the investment adviser agreed to maintain expenses of the Fund, exclusive of
management, distribution, and service fees, at not more than 0.40% of average daily net assets. To the extent actual
expenses were over this limitation, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $ 0.06 $(0.02)
Ratios (to average net assets):
Expenses## 2.09%+ 2.85%+
Net investment income (loss) 0.83%+ (0.09)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ---------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998*
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $14.16 $13.63
------ ------
Income from investment operations# -
Net investment income(S) $ 0.07 $ 0.10
Net realized and unrealized gain on investments and
foreign currency### 1.93 0.45
------ ------
Total from investment operations $ 2.00 $ 0.55
------ ------
Less distributions declared to shareholders -
From net investment income $(0.07) $(0.02)
From net realized gain on investments and foreign
currency transactions (0.22) --
------ ------
Total distributions declared to shareholders $(0.29) $(0.02)
------ ------
Net asset value - end of period $15.87 $14.16
====== ======
Total return 14.16%++ 4.02%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.01%+ 2.09%+
Net investment income 0.93%+ 0.66%+
Portfolio turnover 54% 89%
Net assets at end of period (000 omitted) $7,707 $3,613
* For the period from the inception of Class C, November 5, 1997, through August 31, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fees based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent.
### The per share amount is not in accordance with the net realized and unrealized gain (loss) for the period ended August
31, 1998 because of the timing of sales of Fund shares and the amount of per share realized and unrealized gains and
losses at such time.
(S) Subject to reimbursement by the Fund, the investment adviser agreed to maintain expenses of the Fund, exclusive of
management, distribution, and service fees, at not more than 0.40% of average daily net assets. To the extent actual
expenses were over this limitation, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $ 0.06 $(0.02)
Ratios (to average net assets):
Expenses## 2.09%+ 2.83%+
Net investment income (loss) 0.85%+ (0.09)%+
</TABLE>
See notes to financial statements
<PAGE>
Financial Statements -- continued
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - continued
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
1999 1998 1997*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $14.22 $14.81 $12.20
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.15 $ 0.24 $ 0.15
Net realized and unrealized gain on investments and
foreign currency### 1.97 1.09 2.46
------ ------ ------
Total from investment operations $ 2.12 $ 1.33 $ 2.61
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.13) $(0.21) $ --
From net realized gain on investments and foreign
currency transactions (0.22) (1.71) --
------ ------ ------
Total distributions declared to shareholders $(0.35) $(1.92) $ --
------ ------ ------
Net asset value - end of period $15.99 $14.22 $14.81
====== ====== ======
Total return 15.01%++ 9.83% 21.39%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.01%+ 1.19% 1.54%+
Net investment income 1.95%+ 1.57% 1.51%+
Portfolio turnover 54% 89% 118%
Net assets at end of period (000 omitted) $1,743 $999 $964
* 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.
### The per share amount is not in accordance with the net realized and unrealized gain (loss) for the year ended August 31,
1998 because of the timing of sales of Fund shares and the amount of per share realized and unrealized gains and losses
at such time.
(S) Effective November 1, 1997, subject to reimbursement by the Fund, the investment adviser agreed to maintain expenses of
the Fund, exclusive of management, distribution, and service fees, at not more than 0.40% of average daily net assets.
Prior to November 1, 1997, subject to reimbursement by the Fund, the investment adviser agreed to maintain the expenses
of the Fund, exclusive of management, distribution, and service fees, at not more than 1.50% of average daily net assets.
To the extent actual expenses were over these limitations, the net investment income per share and the ratios would have
been:
Net investment income $ 0.14 $ 0.12 $ 0.03
Ratios (to average net assets):
Expenses## 1.09%+ 1.93% 2.67%+
Net investment income 1.87%+ 0.82% 0.35%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Equity 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. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis
of valuations furnished by dealers or by a pricing service with consideration
to factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or over-the-
counter prices. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of Fund
operations.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Fund's tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on Form
1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60%
of the Fund's average daily net assets.
The Fund has a temporary expense reimbursement agreement whereby MFS has
voluntarily agreed to pay all of the Fund's operating expenses, exclusive of
management, distribution, and service fees. The Fund in turn will pay MFS an
expense reimbursement fee not greater than 0.40% of average daily net assets.
To the extent that the expense reimbursement fee exceeds the Fund's actual
expenses, the excess will be applied to amounts paid by MFS in prior years. At
February 28, 1999, the aggregate unreimbursed expenses owed to MFS by the Fund
amounted to $125,885.
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). Currently, the Trustees are
not receiving any payments for their services to the Fund.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$29,179 for the six months ended February 28, 1999, as its portion of the
sales charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class
C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class A shares
which are attributable to that securities dealer and a distribution fee to MFD
of up to 0.10% per annum of the Fund's average daily net assets attributable to
Class A shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $1,319 for the six months ended February
28, 1999. Fees incurred under the distribution plan during the six months ended
February 28, 1999, were 0.35% of average daily net assets attributable to Class
A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B and
Class C shares. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be consideration for services rendered by the dealer with respect to Class
B and Class C shares. MFD retains the service fee for accounts not
attributable to a securities dealer, which amounted to $0 and $1 for Class B
and Class C shares, respectively, for the six months ended February 28, 1999.
Fees incurred under the distribution plan during the six months ended February
28, 1999, were 1.00% and 1.00% of average daily net assets attributable to
Class B and Class C shares on an annualized basis, respectively.
Certain Class A and Class C are subject to a contingent deferred sales charge
in the event of a shareholder redemption within 12 months following purchase.
A contingent deferred sales charge is imposed on shareholder redemption's of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the six months ended February 28, 1999,
were $99, $25,628, and $675 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.1125%. This fee was reduced to an effective annual rate of 0.1000%
effective April 1, 1999.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$44,109,457 and $26,322,635, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $56,533,685
-----------
Gross unrealized appreciation $ 3,485,363
Gross unrealized depreciation (2,174,314)
-----------
Net unrealized appreciation $ 1,311,049
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED AUGUST 31, 1998
--------------------------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 793,054 $ 12,314,734 926,375 $14,265,389
Shares issued to shareholders in
reinvestment of distributions 20,457 322,134 6,821 95,820
Shares reacquired (302,218) (4,622,576) (182,591) (2,735,072)
-------- ------------ -------- -----------
Net increase 511,293 $ 8,014,292 750,605 $11,626,137
======== ============ ======== ===========
<CAPTION>
Class B Shares
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED AUGUST 31, 1998
--------------------------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 779,092 $ 12,220,409 1,290,212 $19,644,691
Shares issued to shareholders in
reinvestment of distributions 24,866 391,536 1,193 18,889
Shares reacquired (222,055) (3,507,938) (106,047) (1,624,609)
-------- ------------ -------- -----------
Net increase 581,903 $ 9,104,007 750,605 $11,626,137
======== ============ ======== ===========
<CAPTION>
Class C Shares
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED AUGUST 31, 1998
--------------------------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 276,104 $ 4,373,954 271,897 $ 4,122,597
Shares issued to shareholders in
reinvestment of distributions 5,657 89,050 190 3,002
Shares reacquired (51,343) (805,244) (16,890) (253,965)
-------- ------------ -------- -----------
Net increase 230,418 $ 3,657,760 255,197 $ 3,871,634
======== ============ ======== ===========
<CAPTION>
Class I Shares
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED AUGUST 31, 1998
--------------------------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 38,843 $ 619,845 12,779 $ 195,481
Shares issued to shareholders in
reinvestment of distributions 1,675 26,371 9,194 123,327
Shares reacquired (1,741) (27,833) (16,779) (262,225)
-------- ------------ -------- -----------
Net increase 38,777 $ 618,383 5,194 $ 56,583
======== ============ ======== ===========
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of Fund
shares. Interest is charged to each fund, based on its borrowings, at a rate
equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Fund for the six months ended February 28, 1999, was $212.
<PAGE>
MFS(R) EQUITY INCOME FUND
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until
1991), MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor
CUSTODIAN
Lawrence H. Cohn, M.D. - Chief of State Street Bank and Trust Company
Cardiac Surgery, Brigham and Women's
Hospital; Professor of Surgery, INVESTOR INFORMATION
Harvard Medical School For MFS stock and bond market
outlooks, call toll free:
The Hon. Sir J. David Gibbons, KBE - 1-800-637-4458 anytime from a
Chief Executive Officer, Edmund touch-tone telephone.
Gibbons Ltd.; Chairman, Colonial
Insurance Company, Ltd. For information on MFS mutual funds,
call your financial adviser or, for
Abby M. O'Neill - Private Investor an information kit, call toll free:
1-800-637-2929 any business day from
Walter E. Robb, III - President and 9 a.m. to 5 p.m. Eastern time (or
Treasurer, Benchmark Advisors, Inc. leave a message anytime).
(corporate financial consultants);
President, Benchmark Consulting Group, INVESTOR SERVICE
Inc. (office services) MFS Service Center, Inc.
P.O. Box 2281
Arnold D. Scott* - Senior Executive Boston, MA 02107-9906
Vice President, Director, and
Secretary, MFS Investment Management For general information, call toll
free: 1-800-225-2606 any business day
Jeffrey L. Shames* - Chairman, Chief from 8 a.m. to 8 p.m. Eastern time.
Executive Officer, and Director, MFS
Investment Management For service to speech- or
hearing-impaired, call toll free:
J. Dale Sherratt - President, Insight 1-800-637-6576 any business day from
Resources, Inc. (acquisition planning 9 a.m. to 5 p.m. Eastern time. (To
specialists) use this service, your phone must be
equipped with a Telecommunications
Ward Smith - Former Chairman (until Device for the Deaf.)
1994), NACCO Industries (holding
company) For share prices, account balances,
and exchanges, call toll free:
INVESTMENT ADVISER 1-800-MFS-TALK (1-800-637-8255)
Massachusetts Financial Services Company anytime from a touch-tone telephone.
500 Boylston Street
Boston, MA 02116-3741 WORLD WIDE WEB
www.mfs.com
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Lisa B. Nurme*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
<PAGE>
-----------------
MFS(R) EQUITY INCOME FUND Bulk Rate
U.S. Postage
[Logo] MFS(R) Paid
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) -----------------
500 Boylston Street
Boston, MA 02116-3741
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MEI-3 4/99 10M 93/293/393/893
