<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[graphic omitted]
MFS(R) RESEARCH GROWTH
AND INCOME FUND
SEMIANNUAL REPORT o FEBRUARY 29, 2000
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 15
Notes to Financial Statements ............................................. 22
Trustees and Officers ..................................................... 29
MFS(R) ORIGINAL RESEARCH(SM)
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,
One could easily argue that the Internet represents the greatest technological
development most of us may see in our lifetimes. There is no disputing that this
new communication medium is changing forever the way we work, play, and shop.
One might also argue that investing in this new technology represents the
investment opportunity of a lifetime. The question for any investor is whether
and how to take advantage of it.
The popular press, it seems, would have us believe that by surfing the Web, we
can learn everything we need to know about investing. Indeed, there is no doubt
that Internet-delivered information and brokerage services enable individual
investors to be well informed and to trade at bargain prices. But we believe the
numbers and facts argue that, for most of us, mutual funds purchased through an
investment professional will continue to be one of the best products for
long-term investing in this new millennium.
According to a survey by the Investment Company Institute, the national
association of American investment companies, 44% of American households own
stock or bond mutual funds, while only 25.5% own individual stocks.(1) Of course
that doesn't tell us how well they did owning those funds or stocks, but another
statistic gives us a clue. In the third quarter of 1999, during a period of
volatility in the greatest bull market in history, a quarter of the 7,500 stocks
tracked by Morningstar, a popular rating service, lost more than 20% of their
value. But during the same period, fewer than 1% of the mutual funds tracked by
Morningstar -- 6 out of 10,000 funds -- were down by a similar amount.(2) So an
investor's chance of picking one of those losing stocks was about 25 times
greater than his or her chance of picking an equally losing fund.
The numbers also show that a majority of Americans seek professional advice when
buying mutual funds. Outside of employer-sponsored retirement plans,
approximately 68% of fund shareholders state that their primary method of
purchasing shares is through an investment professional.(1)
Why do we at MFS(R) believe that mutual funds plus professional advice will
continue to define the best course of action for many investors? Let's look at
some of the characteristics of a successful long-term investment approach:
o HAVING A PLAN AND STICKING TO IT: Our experience is that successful
investors -- those whose lives are enriched by the fruits of their
investing -- share two characteristics. They have a plan for reaching their
monetary goals, and they stick with that plan through up as well as down
markets. And for many investors, working with an investment professional
may be the best way to develop a plan. Although the Internet abounds with
calculators for developing all sorts of investment plans, none has your
investment professional's high level of experience and an understanding of
your unique situation. And no calculator can counsel you during a down
market, when you may be tempted to abandon your goals and your plan.
o DIVERSIFICATION: Few investors can afford to own a large number of
holdings, so poor performance of one company can potentially drag down
their entire portfolio. This is especially true when investing in volatile
new areas such as the Internet. On the other hand, a diversified mutual
fund that owns dozens or even hundreds of holdings is better positioned to
survive a disappointment in one or several investments.
o GOOD IN A DOWN MARKET: As we enter the tenth year of the greatest bull
market in history, it's easy to forget that market downturns are an almost
inevitable part of investing. Few mutual funds, of course, are going to be
up when the overall market is down. But as the numbers above from the third
quarter of 1999 demonstrate, mutual funds may be less likely to suffer the
extreme downturns experienced by a large number of individual holdings when
the market heads south.
o MFS ORIGINAL RESEARCH(R): The Internet is one of the greatest research
tools ever invented, but it's still not the same as being eyeball to
eyeball with the management of a company and discussing their plans for
their firm's future.
o GOOD PERFORMANCE AT AN ACCEPTABLE LEVEL OF RISK: Investing in individual
stocks or bonds does indeed offer the potential of exhilarating performance
that few mutual funds even attempt. The downside is that the most exciting
investments are also likely to be the ones that give you sleepless nights.
The diversification and professional management of mutual funds help make
them inherently less risky than individual stock picking, and funds are
available in a wide range of risk profiles.
We believe that now, more than ever, mutual funds sold by an investment
professional may offer many investors the best way to participate in whatever
investment opportunities the new millennium may bring. The combination of
professional portfolio management and professional advice recognizes the key
reason that investors give us their money: because they don't want to make a
hobby or a second profession out of investing; they simply want their money to
work for them so they have a better likelihood of realizing their dreams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
[Graphic Omitted]
/s/ Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
March 15, 2000
- --------------
(1)Source: Investment Company Institute.
(2)Source: Morningstar CEO Don Phillips' keynote address at The Baltimore
Sun's Dollars and Sense Conference, 10/99. In the period 7/1/99 through 9/
30/99, of the 7,500 stocks tracked by Morningstar, 1,865 lost 20% or more;
of the 10,000 mutual funds tracked by Morningstar, six lost 20% or more.
Mutual fund results are at net asset value; if sales charges had been
reflected, results would have been lower.
Investments in mutual funds will fluctuate and may be worth more or less upon
redemption.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Alec C. Murray]
Alec C. Murray
For the six months ended February 29, 2000, Class A shares of the Fund provided
a total return of -3.77%, Class B shares -4.10%, Class C shares -4.11%, and
Class I shares -3.65%. These results, which include the reinvestment of any
distributions but exclude the effects of any sales charges, compare to a 4.11%
return for the Fund's benchmark, the Standard & Poor's 500 Composite Index (the
S&P 500) for the same period. The S&P 500 is a popular, unmanaged index of
common stock total return performance. The average large-cap core fund returned
9.82% for the same period, as tracked by Lipper Inc., an independent firm that
reports mutual fund performance.
Q. IT APPEARS TO HAVE BEEN A DIFFICULT PERIOD FOR VALUE-ORIENTED GROWTH AND
INCOME PORTFOLIOS. CAN YOU TELL US A BIT ABOUT THIS MARKET ENVIRONMENT?
A. In our opinion, the broad-based underperformance of value and more
conservative growth stocks is due to a massive revaluation in the
marketplace. In other words, despite recent volatility, the expensive
growth stocks, in particular technology and telecommunications stocks,
became even more expensive, while stock prices for the rest of the market
drifted downward. Essentially, the market abandoned the philosophy of
"growth at a reasonable price" and pursued growth at any price. As a
result, even well-known and highly respected companies with long histories
of rising earnings have languished in this technology-crazed market.
Q. WHAT DO YOU THINK ARE THE MAIN FACTORS CAUSING THIS TREND?
A. We think it's primarily a function of how the information age we live in
is dramatically changing the economy. The technology and telecommunications
stocks have done so well because they are largely responsible for the
productivity gains we've experienced in this "new economy." As a result,
investors believe the manufacturers and providers of innovative technology
have the best prospects for earnings and revenue growth for the next
several years, and in some cases they are willing to pay almost any price
for this growth. This environment has also raised doubts about the
sustainability of growth for the "old economy" companies built without the
cost and productivity advantages of the Internet and e-commerce.
Consequently, we believe investors have become apprehensive about investing
in these stocks.
Q. THE OBVIOUS QUESTION THEN BECOMES, HOW HAVE YOU DEALT WITH THIS
ENVIRONMENT GIVEN THE PORTFOLIO'S DIVERSIFIED INVESTMENT APPROACH AND
LIMITED TECHNOLOGY EXPOSURE?
A. We've sought to enhance performance by investing in companies that appear
to have the best prospects in our investable universe. Our focus is on
companies that demonstrate reliable earnings growth, strong market
positions, innovative products, and most importantly, management strategies
that adapt their business models to the new economy. One of the ways we've
worked to accomplish this goal is to invest in market leaders such as
Intel, Microsoft, Cisco, Sun Microsystems, Oracle, Motorola, and Sprint.
These companies have been key contributors to and beneficiaries of the huge
growth in e-commerce, Internet usage, and the demand for telecommunications
services.
Q. THE FUND'S TOP HOLDINGS AND SECTOR WEIGHTINGS HAVE REMAINED RELATIVELY
CONSTANT. HAVE YOU MADE ANY CHANGES TO THE PORTFOLIO?
A. We've made a few minor adjustments as the market has, in my view,
indiscriminately sold off quality companies that we believe possess strong
long-term prospects. Good examples would be stocks such as Exxon Mobil and
BP Amoco, which have not performed well despite the dramatic increase in
oil prices and the favorable outlook for accelerating earnings growth at
these companies. Consequently, we've been taking advantage of their price
weakness during the quarter to increase the portfolio's exposure to these
stocks. However, we think a key thing to emphasize in this volatile market
is the importance of a long-term investment approach. My strategy for this
portfolio is not to try to catch the hot trend, but rather to focus on the
fundamental business outlooks of the companies we buy and hold in the
portfolio. Over the long run, earnings dictate stock prices. That's why we
believe a disciplined, bottom-up approach to investing usually serves
investors well. Obviously, investors expect good returns. But it is also
realistic to expect periods of underperformance. When the market is
volatile or focused on one particular sector, as we've experienced with
technology, we can't panic and change everything. History has shown that it
is best to invest for the long haul.
Q. WHERE DO YOU SEE THE BEST OPPORTUNITIES FOR THE FUND IN THE COMING MONTHS?
A. It may take a while before investors begin to return to the depressed
stocks outside the technology and telecommunications sectors. However, we
don't believe this extremely narrow market strength can last forever. As a
result, in our view, the portfolio is well positioned to take advantage of
the favorable long-term growth prospects in attractively valued sectors
such as financial services, energy, and health care. At the same time, we
believe the portfolio's moderate exposure to technology and
telecommunications stocks could benefit the Fund due to the impressive
long-term growth potential in these sectors.
/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.
It is not possible to invest directly in an index.
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FUND FACTS
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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: $183.5 MILLION NET ASSETS AS OF
FEBRUARY 29, 2000
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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. (See Notes to
Performance Summary.)
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH FEBRUARY 29, 2000
CLASS A
6 Months 1 Year 3 Years Life*
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Cumulative Total Return Excluding Sales
Charge -3.77% +0.56% +49.61% +99.56%
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Average Annual Total Return Excluding
Sales Charge -- +0.56% +14.37% +18.09%
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Average Annual Total Return Including
Sales Charge -- -5.22% +12.14% +16.42%
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CLASS B
6 Months 1 Year 3 Years Life*
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Cumulative Total Return Excluding Sales
Charge -4.10% -0.16% +46.27% +94.27%
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Average Annual Total Return Excluding
Sales Charge -- -0.16% +13.51% +17.33%
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Average Annual Total Return Including
Sales Charge -- -3.85% +12.73% +17.03%
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CLASS C
6 Months 1 Year 3 Years Life*
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Cumulative Total Return Excluding Sales
Charge -4.11% -0.22% +46.27% +93.97%
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Average Annual Total Return Excluding
Sales Charge -- -0.22% +13.51% +17.28%
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Average Annual Total Return Including
Sales Charge -- -1.14% +13.51% +17.28%
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CLASS I
6 Months 1 Year 3 Years Life*
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Cumulative Total Return Excluding Sales
Charge -3.65% +0.79% +50.71% +101.52%
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Average Annual Total Return Excluding
Sales Charge -- +0.79% +14.65% + 18.36%
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*For the period from the commencement of the Fund's investment operations,
January 2, 1996, through February 29, 2000.
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 5.75% sales charge. Class B Share Performance Including
Sales Charge takes into account the deduction of the applicable contingent
deferred sales charge (CDSC), which declines over six years from 4% to 0%. Class
C Share Performance Including Sales Charge takes into account the deduction of
the 1% CDSC applicable to Class C shares redeemed within 12 months. Class I
shares have no sales charge and are only available to certain institutional
investors.
Class B, C, and I share performance includes the performance of the Fund's Class
A shares for periods prior to their inception (blended performance). Class B and
C blended performance has been adjusted to take into account the CDSC applicable
to Class B and C shares rather than the initial sales charge (load) applicable
to Class A shares. Class I share blended performance has been adjusted to
account for the fact that Class I shares have no sales charge. These blended
performance figures have not been adjusted to take into account differences in
class-specific operating expenses. Because operating expenses of Class B and C
shares are higher than those of Class A, the blended Class B and C share
performance is higher than it would have been had Class B and C shares been
offered for the entire period. Conversely, because operating expenses of Class I
shares are lower than those of Class A, the blended Class I share performance is
lower than it would have been had Class I shares been offered for the entire
period.
All 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 capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
<PAGE>
PORTFOLIO CONCENTRATION AS OF FEBRUARY 29, 2000
FIVE LARGEST STOCK SECTORS
[Graphic Omitted]
TECHNOLOGY 23.9%
FINANCIAL SERVICES 14.5%
UTILITIES & COMMUNICATIONS 12.5%
HEALTH CARE 9.7%
CONSUMER STAPLES 9.6%
TOP 10 STOCK HOLDINGS
<TABLE>
<CAPTION>
<S> <C>
INTEL CORP. 4.3% TYCO INTERNATIONAL LTD. 2.6%
Semiconductor manufacturer Security systems, packaging, and electronic
equipment conglomerate
CISCO SYSTEMS, INC. 3.9%
Computer network developer SPRINT CORP. 2.6%
Long-distance telephone company
EXXON MOBIL CORP. 3.4%
International oil and gas company WAL-MART STORES, INC. 2.4%
Retail chain
MICROSOFT CORP. 3.4%
Computer software and systems company MOTOROLA, INC. 2.3%
Manufacturer of communications and
SUN MICROSYSTEMS, INC. 3.3% electronics products
Computer systems company
ORACLE CORP. 2.1%
Database software developer and manufacturer
</TABLE>
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- February 29, 2000
<TABLE>
<CAPTION>
Stocks - 97.7%
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ISSUER SHARES VALUE
- ----------------------------------------------------------------------------------------------------
U.S. Stocks - 90.6%
Aerospace - 1.4%
<S> <C> <C>
General Dynamics Corp. 33,800 $ 1,461,850
United Technologies Corp. 22,200 1,130,813
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$ 2,592,663
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Automotive - 0.5%
Delphi Automotive Systems Corp. 54,200 $ 904,463
- ----------------------------------------------------------------------------------------------------
Banks and Credit Companies - 3.0%
PNC Bank Corp. 40,000 $ 1,547,500
Bank America Corp. 16,700 769,244
Capital One Financial Corp. 25,800 949,762
Chase Manhattan Corp. 29,000 2,309,125
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$ 5,575,631
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Business Machines - 3.2%
Sun Microsystems, Inc.* 60,640 $ 5,775,960
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Chemicals - 0.8%
Air Products & Chemicals, Inc. 17,900 $ 460,925
Eastman Chemical Co. 14,400 517,500
Rohm & Haas Co. 13,300 536,988
------------
$ 1,515,413
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Computer Software - Personal Computers - 3.7%
Microsoft Corp.* 76,900 $ 6,872,937
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Computer Software - Services - 1.9%
EMC Corp.* 28,500 $ 3,391,500
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Computer Software - Systems - 2.5%
Computer Associates International, Inc. 9,600 $ 617,400
Oracle Corp.* 54,200 4,024,350
------------
$ 4,641,750
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Conglomerates - 2.5%
Tyco International Ltd. 122,144 $ 4,633,838
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Consumer Goods and Services - 5.1%
Clorox Co. 49,500 $ 2,001,656
Colgate-Palmolive Co. 46,900 2,447,594
Dial Corp. 66,500 955,937
Fortune Brands, Inc. 26,200 573,125
Galileo International, Inc. 49,300 838,100
Monsanto Co. 11,600 450,225
Procter & Gamble Co. 24,100 2,120,800
------------
$ 9,387,437
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Containers - 0.1%
Owens Illinois, Inc.* 17,500 $ 241,719
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Electrical Equipment - 1.0%
Emerson Electric Co. 38,700 $ 1,763,269
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Electronics - 4.3%
Intel Corp. 69,500 $ 7,853,500
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Energy - 0.5%
Sierra Pacific Resources Co. 63,352 $ 863,171
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Financial Institutions - 3.9%
Associates First Capital Corp., "A" 54,000 $ 1,073,250
Citigroup, Inc. 56,100 2,899,669
Federal Home Loan Mortgage Corp. 40,500 1,690,875
FleetBoston Financial Corp. 54,934 1,496,951
------------
$ 7,160,745
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Financial Services - 0.8%
AXA Financial, Inc. 48,200 $ 1,442,988
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Food and Beverage Products - 4.4%
Anheuser-Busch Cos., Inc. 27,900 $ 1,789,087
General Mills, Inc. 40,600 1,337,262
Keebler Foods Co.* 51,900 1,316,963
Nabisco Holdings Corp., "A" 67,100 1,962,675
Quaker Oats Co. 32,500 1,752,969
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$ 8,158,956
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Forest and Paper Products - 0.4%
Weyerhaeuser Co. 15,300 $ 785,081
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Insurance - 5.9%
American International Group, Inc. 25,875 $ 2,288,320
Aon Corp. 16,600 347,562
CIGNA Corp. 35,900 2,649,869
Gallagher (Arthur J.) & Co. 28,000 1,431,500
Hartford Financial Services Group, Inc. 35,920 1,122,500
Lincoln National Corp. 31,900 887,219
Marsh & McLennan Cos., Inc. 8,400 649,950
ReliaStar Financial Corp. 39,054 1,091,071
Travelers Property Casualty Corp. 8,900 281,463
------------
10,749,454
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Machinery - 2.8%
Danaher Corp. 46,400 $ 1,893,700
Deere & Co., Inc. 30,400 1,086,800
Ingersoll Rand Co. 27,900 1,068,919
W.W. Grainger, Inc. 24,100 1,031,781
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$ 5,081,200
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Medical and Health Products - 5.9%
American Home Products Corp. 68,300 $ 2,971,050
Bausch & Lomb, Inc. 31,900 1,682,725
Bristol-Myers Squibb Co. 64,300 3,653,044
Pharmacia & Upjohn, Inc. 52,800 2,514,600
------------
$ 10,821,419
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Medical and Health Technology and Services - 2.3%
Genentech, Inc.* 3,400 $ 655,775
Medtronic, Inc. 72,100 3,492,344
------------
$ 4,148,119
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Metals and Minerals - 1.2%
Alcoa, Inc. 31,460 $ 2,155,010
- ----------------------------------------------------------------------------------------------------
Oil Services - 0.4%
Cooper Cameron Corp.* 13,300 $ 734,825
- ----------------------------------------------------------------------------------------------------
Oils - 5.3%
Conoco, Inc. 137,700 $ 2,710,969
Exxon Mobil Corp. 84,236 6,344,023
Transocean Sedco Forex, Inc.* 18,000 709,875
------------
$ 9,764,867
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Printing and Publishing - 1.1%
Tribune Co. 53,400 $ 2,079,263
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Real Estate Investment Trusts - 0.9%
Highwoods Properties, Inc. 78,100 $ 1,635,219
- ----------------------------------------------------------------------------------------------------
Stores - 5.3%
CVS Corp. 68,500 $ 2,397,500
Target Corp. 38,200 2,253,800
TJX Cos., Inc. 51,000 812,812
Wal-Mart Stores, Inc. 88,400 4,303,975
------------
$ 9,768,087
- ----------------------------------------------------------------------------------------------------
Supermarkets - 1.7%
Kroger Co.* 51,300 $ 763,087
Safeway, Inc.* 59,100 2,279,044
------------
$ 3,042,131
- ----------------------------------------------------------------------------------------------------
Telecommunications - 14.2%
Bell Atlantic Corp. 65,900 $ 3,224,981
Cisco Systems, Inc.* 47,400 6,265,688
Corning, Inc. 16,151 3,036,388
MCI WorldCom, Inc.* 76,050 3,393,731
Motorola, Inc. 24,100 4,109,050
Nortel Networks Corp. 14,000 1,561,000
Sprint Corp. 71,800 4,379,800
------------
$ 25,970,638
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Utilities - Electric - 1.1%
CMS Energy Corp. 38,210 $ 640,018
Peco Energy Co. 38,100 1,421,606
------------
$ 2,061,624
- ----------------------------------------------------------------------------------------------------
Utilities - Gas - 1.0%
Columbia Energy Group Co. 32,450 $ 1,914,550
- ----------------------------------------------------------------------------------------------------
Utilities - Telephone - 1.5%
U.S. West, Inc. 38,900 $ 2,825,112
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Total U.S. Stocks $166,312,539
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Foreign Stocks - 7.1%
Canada - 0.9%
Canadian National Railway Co. (Railroads) 73,135 $ 1,723,243
- ----------------------------------------------------------------------------------------------------
Germany - 0.4%
Henkel KGaA, Preferred (Chemicals) 12,900 $ 675,074
- ----------------------------------------------------------------------------------------------------
Ireland - 0.8%
Bank of Ireland (Banks and Credit Cos.)* 241,900 $ 1,414,454
- ----------------------------------------------------------------------------------------------------
Japan - 0.9%
Nippon Telegraph & Telephone Co. (Utilities -
Telephone) 114 $ 1,577,280
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Netherlands - 0.5%
ING Groep N.V. (Financial Services)* 19,545 $ 989,652
- ----------------------------------------------------------------------------------------------------
Switzerland - 0.3%
Nestle S.A. (Food and Beverage Products) 337 $ 569,016
- ----------------------------------------------------------------------------------------------------
United Kingdom - 3.3%
BP Amoco PLC, ADR (Oils) 73,576 $ 3,458,072
Lloyds TSB Group PLC (Banks and Credit Cos.)* 603 5,567
Vodafone AirTouch PLC (Telecommunications)* 459,923 2,573,141
------------
$ 6,036,780
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Total Foreign Stocks $ 12,985,499
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Total Stocks (Identified Cost, $161,637,551) $179,298,038
- ----------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 1.7%
- ----------------------------------------------------------------------------------------------------
Insurance - 0.1%
Lincoln National Corp., 7.75% 9,000 $ 148,500
- ----------------------------------------------------------------------------------------------------
Utilities - Electric - 1.6%
Houston Industries, Inc., 7.00% 20,400 $ 2,895,525
- ----------------------------------------------------------------------------------------------------
Total Convertible Preferred Stock (Identified Cost, $1,998,382) $ 3,044,025
- ----------------------------------------------------------------------------------------------------
Short-Term Obligation - 0.6%
- ----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------------
Student Loan Marketing Assn., due 3/01/00,
at Amortized Cost $ 1,205 $ 1,205,000
- ----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $164,840,933) $183,547,063
Other Assets, Less Liabilities - 0.0% 2,429
- ----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $183,549,492
- ----------------------------------------------------------------------------------------------------
*Non-income producing security.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
FEBRUARY 29, 2000
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $164,840,933) $183,547,063
Investments of cash collateral for securities loaned, at
value (identified cost, $1,905,270) 1,905,270
Cash 3,125
Receivable for Fund shares sold 361,490
Receivable for investments sold 578,487
Net receivable for forward foreign currency exchange
contracts to sell 32,396
Net receivable for forward foreign currency exchange
contracts subject to master netting agreements 145,299
Dividends and interest receivable 186,196
Deferred organization expenses 364
Other assets 1,687
------------
Total assets $186,761,377
------------
Liabilities:
Payable for Fund shares reacquired $ 1,001,166
Payable for investments purchased 198,753
Collateral for securities loaned, at value 1,905,270
Payable to affiliates -
Management fee 3,235
Shareholder servicing agent fee 498
Distribution and service fee 3,793
Administrative fee 75
Accrued expenses and other liabilities 99,095
------------
Total liabilities $ 3,211,885
------------
Net assets $183,549,492
============
Net assets consist of:
Paid-in capital $166,886,556
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 18,883,815
Accumulated net realized loss on investments and foreign
currency transactions (1,879,061)
Accumulated net investment loss (341,818)
------------
Total $183,549,492
============
Shares of beneficial interest outstanding 11,626,406
==========
Class A shares:
Net asset value per share
(net assets of $66,654,664 / 4,186,808 shares of
beneficial interest outstanding) $15.92
======
Offering price per share (100 / 94.25 of net asset value
per share) $16.89
======
Class B shares:
Net asset value and offering price per share
(net assets of $98,278,981 / 6,252,088 shares of
beneficial interest outstanding) $15.72
======
Class C shares:
Net asset value and offering price per share
(net assets of $18,140,642 / 1,157,814 shares of
beneficial interest outstanding) $15.67
======
Class I shares:
Net asset value, offering price, and redemption price per
share (net assets of $475,205 / 29,696 shares of
beneficial interest outstanding) $16.00
======
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
<TABLE>
<CAPTION>
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 29, 2000
- -------------------------------------------------------------------------------------------
Net investment income (loss):
Income -
<S> <C>
Dividends $ 1,271,890
Interest 153,582
Foreign taxes withheld (7,049)
------------
Total investment income $ 1,418,423
------------
Expenses -
Management fee $ 662,945
Trustee's compensation 20,002
Shareholder servicing agent fee 101,992
Distribution and service fee (Class A) 129,205
Distribution and service fee (Class B) 542,865
Distribution and service fee (Class C) 105,188
Administrative fee 10,899
Custodian fee 45,889
Printing 17,324
Postage 15,064
Auditing fees 16,161
Legal fees 246
Amortization of organization expenses 218
Miscellaneous 109,738
------------
Total expenses $ 1,777,736
Reduction of expenses by distributor (25,387)
Fees paid indirectly (11,003)
------------
Net expenses $ 1,741,346
------------
Net investment loss $ (322,923)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (2,114,203)
Foreign currency transactions (54,338)
------------
Net realized loss on investments and foreign currency transactions $ (2,168,541)
------------
Change in unrealized appreciation (depreciation) -
Investments $ (5,255,249)
Translation of assets and liabilities in foreign currencies 177,551
------------
Net unrealized loss on investments and foreign currency translation $ (5,077,698)
------------
Net realized and unrealized loss on investments and foreign
currency $ (7,246,239)
------------
Decrease in net assets from operations $ (7,569,162)
============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment loss $ (322,923) $ (338,645)
Net realized gain (loss) on investments and foreign
currency transactions (2,168,541) 15,970,060
Net unrealized gain (loss) on investments and
foreign currency translation (5,077,698) 25,736,868
------------ -------------
Increase (decrease) in net assets from operations $ (7,569,162) $ 41,368,283
------------ -------------
Distributions declared to shareholders -
From net investment income (Class A) $ -- $ (52,701)
From net investment income (Class I) -- (4,034)
From net realized gain on investments and foreign
currency transactions (Class A) (5,596,721) (2,375,799)
From net realized gain on investments and foreign
currency transactions (Class B) (8,358,049) (3,430,602)
From net realized gain on investments and foreign
currency transactions (Class C) (1,618,635) (655,481)
From net realized gain on investments and foreign
currency transactions (Class I) (47,760) (43,344)
------------ -------------
Total distributions declared to shareholders $(15,621,165) $ (6,561,961)
------------ -------------
Net increase (decrease) in net assets from Fund share
transactions $ (4,710,806) $ 34,164,183
------------ -------------
Total increase (decrease) in net assets $(27,901,133) $ 68,970,505
Net assets:
At beginning of period 211,450,625 142,480,120
------------ -------------
At end of period (including accumulated net investment
loss of $341,818 and $18,895, respectively) $183,549,492 $ 211,450,625
============ =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
SIX MONTHS ENDED ----------------------------------------- AUGUST 31,
FEBRUARY 29, 2000 1999 1998 1997 1996*
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $17.87 $14.42 $14.12 $11.13 $10.00
------ ------ ------ ------ ------
Income (loss) from investment operations#-
Net investment income(S) $ 0.01 $ 0.05 $ 0.09 $ 0.07 $ 0.05
Net realized and unrealized gain (loss)
on investments and foreign currency (0.63) 4.03 0.78 3.02 1.08
------ ------ ------ ------ ------
Total from investment operations $(0.62) $ 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 (1.33) (0.62) (0.54) (0.04) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.33) $(0.63) $(0.57) $(0.10) $ --
------ ------ ------ ------ ------
Net asset value - end of period $15.92 $17.87 $14.42 $14.12 $11.13
====== ====== ====== ====== ======
Total return(+) (3.77)%++ 28.64% 6.33% 36.22% 11.30%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.25%+ 1.23% 1.29% 1.51% 1.55%+
Net investment income 0.14%+ 0.30% 0.56% 0.56% 0.65%+
Portfolio turnover 35% 96% 101% 106% 58%
Net assets at end of period (000 Omitted) $66,655 $76,635 $52,238 $33,567 $492
(S)Prior to January 1, 2000, the distributor voluntarily waived all or a portion of its distribution fee for the 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## 1.32%+ 1.33% 1.39% 1.55% 4.58%+
Net investment income (loss) 0.07%+ 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.
##Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
(+)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
- -----------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED AUGUST 31, ENDED
SIX MONTHS ENDED ---------------------- AUGUST 31,
FEBRUARY 29, 2000 1999 1998 1997*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $17.72 $14.40 $14.11 $12.01
------ ------ ------ ------
Income (loss) from investment operations# -
Net investment loss(S) $(0.05) $(0.08) $(0.03) $(0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency (0.62) 4.02 0.80 2.13
------ ------ ------ ------
Total from investment operations $(0.67) $ 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 (1.33) (0.62) (0.48) --
In excess of net investment income -- -- -- (0.00)+++
------ ------ ------ ------
Total distributions declared to
shareholders $(1.33) $(0.62) $(0.48) $(0.01)
------ ------ ------ ------
Net asset value - end of period $15.72 $17.72 $14.40 $14.11
====== ====== ====== ======
Total return (4.10)%++ 27.74% 5.54% 17.56%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.97%+ 1.98% 2.03% 2.26%+
Net investment loss (0.57)%+ (0.45)% (0.19)% (0.22)%+
Portfolio turnover 35% 96% 101% 106%
Net assets at end of period (000 Omitted) $98,279 $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.
##Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights -- continued
- -----------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED AUGUST 31, ENDED
SIX MONTHS ENDED ---------------------- AUGUST 31,
FEBRUARY 29, 2000 1999 1998 1997*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $17.67 $14.36 $14.08 $12.00
------ ------ ------ ------
Income (loss) from investment operations# -
Net investment loss(S) $(0.05) $(0.08) $(0.03) $(0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency (0.62) 4.01 0.80 2.11
------ ------ ------ ------
Total from investment operations $(0.67) $ 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 (1.33) (0.62) (0.49) --
In excess of net investment income -- -- -- (0.00)+++
------ ------ ------ ------
Total distributions declared to
shareholders $(1.33) $(0.62) $(0.49) $(0.01)
------ ------ ------ ------
Net asset value - end of period $15.67 $17.67 $14.36 $14.08
====== ====== ====== ======
Total return (4.11)%++ 27.66% 5.59% 17.41%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.97%+ 1.98% 2.03% 2.26%+
Net investment loss (0.57)%+ (0.46)% (0.19)% (0.21)%+
Portfolio turnover 35% 96% 101% 106%
Net assets at end of period (000 Omitted) $18,141 $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.
##Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights -- continued
- -----------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED AUGUST 31, ENDED
SIX MONTHS ENDED ---------------------- AUGUST 31,
FEBRUARY 29, 2000 1999 1998 1997*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $17.93 $14.47 $14.16 $12.01
------ ------ ------ ------
Income (loss) from investment operations# -
Net investment income(S) $ 0.04 $ 0.09 $ 0.13 $ 0.08
Net realized and unrealized gain (loss) on
investments and foreign currency (0.64) 4.05 0.78 2.11
------ ------ ------ ------
Total from investment operations $(0.60) $ 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 (1.33) (0.62) (0.57) --
In excess of net investment income -- -- -- (0.02)
------ ------ ------ ------
Total distributions declared to
shareholders $(1.33) $(0.68) $(0.60) $(0.04)
------ ------ ------ ------
Net asset value - end of period $16.00 $17.93 $14.47 $14.16
====== ====== ====== ======
Total return (3.65)%++ 28.95% 6.62% 19.01%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.97%+ 0.98% 1.05% 1.19%+
Net investment income 0.42%+ 0.56% 0.80% 0.87%+
Portfolio turnover 35% 96% 101% 106%
Net assets at end of period (000 Omitted) $475 $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.
##Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(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. The Fund can
invest in foreign securities. 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. Debt securities other than
short-term obligations which mature in 60 days or less, including listed issues
and forward contracts, 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.
Securities for which there are no such quotations or valuations are valued in
good faith, at fair value, 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 the
lending agent, may loan the securities of the Fund to certain qualified
institutions (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.
Cash collateral is invested in short-term securities. 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 the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the Borrower,
and is allocated between the Fund and the lending agent. Income from securities
lending is included in interest income on the Statement of Operations. The
dividend and interest income earned on the securities loaned is accounted for in
the same manner as other dividend and interest income.
At February 29, 2000, the value of securities loaned was $1,813,122. These loans
were collateralized by cash of $1,905,270 which was invested in the following
short-term obligation:
AMORTIZED COST
SHARES AND VALUE
- -------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 1,905,270 $1,905,270
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund may enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend payments received in additional securities are
recorded on the ex-dividend date in an amount equal to the value of the security
on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Fund. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits be 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.
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 $6,406 for the six months
ended February 29, 2000.
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
$22,610 for the six months ended February 29, 2000, 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. Prior to January 1, 2000, the Class
A distribution fee was waived on a voluntary basis. MFD retains the service
fee for accounts not attributable to a securities dealer, which amounted to
$1,771 for the six months ended February 29, 2000. Fees incurred under the
distribution plan during the six months ended February 29, 2000, were 0.28% of
average daily net assets attributable to Class A shares on an annualized
basis.
The Trustees have adopted a distribution plan relating to 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 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 $478 and $366 for Class B and Class C shares, respectively, for the
six months ended February 29, 2000. Fees incurred under the distribution plan
during the six months ended February 29, 2000, were 1.00% of average daily net
assets attributable to Class B and Class C shares on an annualized basis.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended February
29, 2000, were $1,124, $149,434, and $5,762 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%.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations, were as
follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
U.S. government securities $ 2,177,334 $ 128,159
------------- -------------
Investments (non-U.S. government securities) $ 68,758,493 $ 83,192,595
------------- --------------
The cost and unrealized appreciation and depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are as
follows:
Aggregate cost $164,840,933
-------------
Gross unrealized appreciation $ 38,832,812
Gross unrealized depreciation (20,126,682)
-------------
Net unrealized appreciation $ 18,706,130
=============
(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 29, 2000 YEAR ENDED AUGUST 31, 1999
---------------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 735,468 $ 12,721,699 3,645,443 $ 63,306,652
Shares issued to shareholders in
reinvestment of distributions 312,259 5,195,991 139,764 2,271,173
Shares reacquired (1,150,464) (19,766,797) (3,117,317) (54,205,988)
---------- ------------- ---------- -------------
Net increase (decrease) (102,737) $ (1,849,107) 667,890 $ 11,371,837
========== ============= ========== =============
<CAPTION>
Class B Shares
SIX MONTHS ENDED FEBRUARY 29, 2000 YEAR ENDED AUGUST 31, 1999
---------------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 626,609 $10,691,895 2,395,114 $41,522,632
Shares issued to shareholders in
reinvestment of distributions 444,300 7,313,182 188,815 3,058,783
Shares reacquired (1,140,010) (19,154,141) (1,544,500) (26,910,916)
---------- ------------- ---------- -------------
Net increase (decrease) (69,101) $ (1,149,064) 1,039,429 $17,670,499
========== ============= ========== =============
<CAPTION>
Class C Shares
SIX MONTHS ENDED FEBRUARY 29, 2000 YEAR ENDED AUGUST 31, 1999
---------------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 599,618 $ 10,210,751 858,873 $ 14,963,918
Shares issued to shareholders in
reinvestment of distributions 75,055 1,231,647 31,558 509,969
Shares reacquired (766,211) (12,956,400) (560,128) (9,863,028)
---------- ------------- ---------- -------------
Net increase (decrease) (91,538) $ (1,514,002) 330,303 $ 5,610,859
========== ============= ========== =============
Class I Shares
SIX MONTHS ENDED FEBRUARY 29, 2000 YEAR ENDED AUGUST 31, 1999
---------------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,344 $ 56,742 7,169 $ 122,855
Shares issued to shareholders in
reinvestment of distributions 2,856 47,754 2,910 47,375
Shares reacquired (17,872) (303,129) (38,533) (659,242)
---------- ------------- ---------- -------------
Net decrease (11,672) $ (198,633) (28,454) $ (489,012)
========== ============= ========== =============
</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 six months ended February 29, 2000, was $733. The Fund had no
significant borrowings during the period.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include forward foreign currency exchange contracts. The notional or
contractual amounts of these instruments represent the investment the Fund has
in particular classes of financial instruments and does not necessarily
represent the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
CONTRACTS TO IN EXCHANGE CONTRACTS UNREALIZED
SETTLEMENT DATE DELIVER FOR AT VALUE APPRECIATION
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 3/15/00 JPY 36,882,672 $368,827 $336,431 $32,396
</TABLE>
At February 29, 2000, forward foreign currency sales under master netting
agreements excluded above amounted to a net receivable of $145,299 with Deutsche
Bank.
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. Dollar. A list of abbreviations is shown below.
JPY = Japanese Yen
At February 29, 2000, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
<PAGE>
<TABLE>
MFS(R) RESEARCH GROWTH AND INCOME FUND
<S> <C>
TRUSTEES ASSISTANT TREASURERS
Richard B. Bailey - Private Investor; Former Mark E. Bradley*
Chairman and Director (until 1991), MFS Ellen Moynihan*
Investment Management(R) 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.
INVESTOR INFORMATION
Abby M. O'Neill - Private Investor For information on MFS mutual funds, call your
investment professional or, for an information
Walter E. Robb, III - President and Treasurer, kit, call toll free: 1-800-637-2929 any
Benchmark Advisors, Inc. (corporate financial business day from 9 a.m. to 5 p.m. Eastern time
consultants); President, Benchmark Consulting (or leave a message anytime).
Group, Inc. (office services)
INVESTOR SERVICE
Arnold D. Scott* - Senior Executive MFS Service Center, Inc.
Vice President, Director, and Secretary, P.O. Box 2281
MFS Investment Management Boston, MA 02107-9906
Jeffrey L. Shames* - Chairman and Chief For general information, call toll free:
Executive Officer, MFS Investment Management 1-800-225-2606 any business day from 8 a.m. to
8 p.m. Eastern time.
J. Dale Sherratt - President, Insight
Resources, Inc. (acquisition planning For service to speech- or hearing-impaired,
specialists) Ward Smith - Former Chairman call toll free: 1-800-637-6576 any business day
(until 1994), NACCO Industries (holding from 9 a.m. to 5 p.m. Eastern time. (To use
company) this service, your phone must be equipped with
a Telecommunications Device for the Deaf.)
INVESTMENT ADVISER
Massachusetts Financial Services Company For share prices, account balances, exchanges,
500 Boylston Street or stock and bond outlooks, call toll free:
Boston, MA 02116-3741 1-800-MFS-TALK (1-800-637-8255) anytime from a
touch-tone telephone.
DISTRIBUTOR
MFS Fund Distributors, Inc. WORLD WIDE WEB
500 Boylston Street www.mfs.com
Boston, MA 02116-3741
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames*
ASSOCIATE DIRECTOR OF EQUITY RESEARCH
Alec C. Murray*
TREASURER
W. Thomas London*
+Independent Trustee
*MFS Investment Management
</TABLE>
<PAGE>
MFS(R) RESEARCH GROWTH ------------
AND INCOME FUND BULK RATE
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
MRG-3 4/00 25M 91/291/391/891
