<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
We Invented the Mutual Fund(R)
[Graphic Omitted]
MFS(R) RESEARCH GROWTH
AND INCOME FUND
ANNUAL REPORT o AUGUST 31, 2000
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 5
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 17
Notes to Financial Statements ............................................. 24
Independent Auditors' Report .............................................. 31
Trustees and Officers ..................................................... 33
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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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,
If you've been reading our fund reports for any length of time, you've probably
sensed the pride we have in our research process. More than anything else, we
think MFS Original Research(R) -- and the performance results it has yielded for
shareholders -- make us unique among investment management companies. We think
that uniqueness stems from three factors: philosophy, process, and people.
PHILOSOPHY
In over 75 years of managing mutual funds, we've developed a number of beliefs
about the best ways to invest over a variety of market conditions. First, we
believe in bottom-up research, which means we use a company-by-company,
one-security-at-a-time approach to building a portfolio. What we look for is the
truth about the fundamentals of a company's business -- things such as the
ability of management to execute its business plan, the ability of that plan to
be scaled up as the company grows, actual demand for the company's products and
services, cash flows, profits, and earnings.
Second, we believe that, over the long term, stock prices follow earnings. In
our view, stock prices are basically a multiple of projected earnings, with the
multiple increasing as the market perceives that a company has something
customers want and will continue to want. One of the major elements of Original
Research(SM) is doing our best to project a company's future earnings and
determine how much the market will pay for those earnings.
Third, we believe there are at least three ways to potentially achieve
competitive long-term performance: be early, uncover second chances, and avoid
mistakes. All of these are based on bottom-up research. In both domestic and
international markets, early discovery has historically been a hallmark of our
investment style. Some of the stocks with which MFS has been most successful are
those in which we've taken large positions before the market discovered or
believed in them. Similarly, some of our best fixed-income investments have
been early positions in companies or governments that our research revealed were
potential candidates for credit upgrades. (A credit upgrade causes the value of
a bond to rise because it indicates the market has increased confidence that
principal and interest on the bond will be repaid.)
"Second-chance" opportunities are companies whose stock prices have stumbled but
that we believe still have the potential to be market leaders. For example, a
quarterly earnings shortfall of a few cents may cause the market to temporarily
lose confidence in a company. If we believe the business remains fundamentally
strong, we may use the price decline as a buying opportunity.
Avoiding mistakes is another way we feel Original Research may help performance.
In fixed-income investing this means, among other things, trying to be better
than our peers at avoiding bond issuers that may default. In equity investing,
avoiding mistakes means we strive to know a company and its industry well enough
to distinguish truth from hype.
PROCESS
We acquire our information firsthand, by researching thousands of companies to
determine which firms may make good investments. Our analysis of an individual
company may include
o face-to-face contact with senior management as well as front-line workers
o analysis of the company's financial statements and balance sheets
o contact with the company's current and potential customers
o contact with the company's competitors
o our own forecasts of the company's future market share, cash flows, and
earnings
Our analysts and portfolio managers disseminate this information in the form of
daily notes e-mailed worldwide to all members of our investment team. This
ensures that our best ideas are shared throughout the company, without barriers
between equity and fixed-income, international and domestic, or value and growth
investment areas. We believe this allows each of our portfolio managers -- and
thus each of our investors -- to potentially benefit from any relevant item of
Original Research.
John Ballen, our President and Chief Investment Officer, has often said that the
thought he hopes each manager will have when they read the daily notes is, "I
could never perform as well at any other investment company, because nowhere
else could the quality of the research be this good."
PEOPLE
Our team of research analysts and portfolio managers traces its roots back to
1932, when we created one of the first in-house research departments in the
industry. Today, we believe we have an investment team distinguished for its
unique blend of talent, continuity, and cohesiveness.
MFS' team culture and commitment to quality research have proven to be of
tremendous value in attracting some of the best and brightest talent from
leading business schools and from other investment management companies. Our
company culture was a key factor in our recognition by Fortune magazine in it's
January 10, 2000 issue as one of the "100 Best Companies to Work For" in
America. As befits a great team, our people tend to stick around -- the average
MFS tenure of our portfolio managers is 11 years, with over 16 years in the
investment industry. Contributing to this continuity is our policy that all
equity portfolio managers are promoted from within, after distinguishing
themselves first as research analysts. And because many of us who are now
managing funds or managing the company itself have been working together for
well over a decade, we have a cohesiveness, a shared philosophy of investing,
and a unity of purpose that we believe bodes well for the future of the
company.
We also have scale. Our research analyst team is over 35 members strong and
growing. Each analyst is our in-house expert on a specific industry or group of
industries in a specific region of the globe. In pursuing their research, our
analysts and portfolio managers each year will visit more than 2,000 companies
throughout the world, meet with representatives from more than 3,000 companies
at one of our four worldwide offices, attend roughly 5,000 company presentations
sponsored by major Wall Street firms, and consult with over 1,000 analysts from
hundreds of U.S. and foreign brokerage houses.
All of this culminates in our analysts making buy and sell recommendations on a
wide range of potential investments for all of our portfolios. In the end, the
goal of Original Research is to try to give our portfolio managers an advantage
over their peers -- to enable our managers to deliver competitive performance,
by finding opportunities before they are generally recognized by the market and
by avoiding mistakes whenever possible. Original Research does, we believe, make
a difference.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
September 15, 2000
A prospectus containing more complete information on any MFS product, including
all charges and expenses, can be obtained from your investment professional.
Please read it carefully before you invest or send money. 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.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Alec C. Murray]
Alec C. Murray
For the 12 months ended August 31, 2000, Class A shares of the fund provided a
total return of 13.76%, Class B shares 12.98%, Class C shares 12.96%, and Class
I shares 14.12%. These results include the reinvestment of any distributions but
exclude the effects of any sales charges and compare to a 16.32% return over the
same period for the fund's benchmark, the Standard & Poor's 500 Composite Index
(the S&P 500), a popular, unmanaged index of common stock total return
performance. During the same period, the average large cap value fund tracked by
Lipper Inc., an independent firm that reports mutual fund performance, returned
9.66%.
Q. AS YOU'VE ANTICIPATED FOR SOME TIME NOW, MARKET LEADERSHIP HAS SHIFTED TO
INCLUDE A BROADER RANGE OF STOCKS AND INDUSTRIES. HOW HAS THIS ENVIRONMENT
AFFECTED THE FUND'S PERFORMANCE?
A. The fund's performance has improved in this environment for a number of
reasons. First and foremost, investors shifted away from their preoccupation
with technology stocks and market leadership rotated into a wider range of
sectors. Our strategy of bottom-up stock-picking and MFS Original
Research(R), which is unencumbered by any particular investment style,
market capitalization, or industry bias, clearly benefited our performance
relative to our Lipper peers. Second, we tended to be invested in the right
stocks within each sector, regardless of overall sector performance.
Finally, the fund's underweighted exposure to technology hurt its
performance relative to the S&P 500 in the early part of the year, but our
focus on companies with strong fundamental growth prospects allowed us to
participate in the resurgence of value stocks during the past few months.
Q. WHAT DO YOU THINK ARE THE MAIN FACTORS CAUSING THIS MORE FAVORABLE
ENVIRONMENT FOR VALUE INVESTING?
A. Broad-based earnings growth across many industries is the primary factor. At
the same time, we don't think the selloff in technology and
telecommunications stocks is due to poor business fundamentals; many of
these businesses still have solid fundamentals in our view. In general, we
expect many technology and telecommunications companies to continue
producing strong earnings acceleration. However, investors have become
cautious after five years of paying ever higher valuations for the good
fundamentals in the technology and telecommunications sectors, especially in
light of the extreme volatility we've experienced in these sectors.
Q. DO YOU SEE INVESTORS REMAINING MORE VALUE CONSCIOUS?
A. It's very difficult to predict this sort of thing, but in the near term we
believe the market will continue to focus more carefully on companies that
are likely to produce earnings growth that meets or exceeds expectations. We
believe this type of market plays directly into the hands of stock pickers
who concentrate on extensive bottom-up research. We don't believe we're
heading into the type of market environment where you can just pick one hot
sector or industry and hope to outperform the overall market. But rather, in
our view, the successful strategy will be to locate the strongest companies
with the most promising business models across a broad range of sectors.
Q. WHERE ARE MFS' ANALYSTS CURRENTLY FINDING OPPORTUNITIES?
A. We're finding opportunities in a wide range of areas. For example, we've
increased our energy and insurance holdings. In the energy sector,
exploration and production companies such as Weatherford International,
Global Marine, and Cooper Cameron have rallied dramatically due to the
rebound in oil and natural gas prices. Higher prices have spurred demand for
drilling services, resulting in strong revenue and earnings growth at many
energy services companies. In the insurance sector, we concentrated on the
commercial property and casualty insurers such as Hartford Financial
Services and Gallagher (Arthur J) & Co., and diversified financial services
companies such as AXA Financial. Early in the year, we felt that many of
these companies' stock prices had fallen below their intrinsic values, and
we saw signs that they were gaining more power to raise their premiums and
gather more assets.
Q. WHAT OTHER AREAS LOOK PROMISING?
A. Despite the volatility we've seen over the past few months in the technology
sector, we've seen exciting growth opportunities. Fund performance has
benefited from significant exposure to networking and telecommunications
companies such as Corning and Nortel Networks, which have experienced robust
demand for their products and services. Also within technology, our focus on
what we believe are the more stable, predictable growers in the computer
systems and data storage industries, such as EMC Corp. and Sun Microsystems,
also provided a strong boost to performance. While some people might argue
that these stocks appear fully valued, we see demand for their products and
services accelerating, and we believe their long-term fundamental business
prospects remain compelling.
Q. WHAT'S YOUR OUTLOOK FOR THE FUND IN THE COMING MONTHS?
A. Although the overall market may continue to tread water over the next few
months as investors digest the recent volatility and become more confident
that companies can achieve the earnings estimates many analysts have set, we
believe there are still numerous opportunities in the market. In addition,
while we don't spend much time focusing on macroeconomic trends, we believe
the economic backdrop continues to support growth because inflation has
remained in check, and it appears the Federal Reserve Board may be through
raising interest rates in the near term. Another positive factor is
declining bond yields, which have fallen to their lowest levels in more than
a year. The recent bond market rally could ease pressures on corporate
borrowing costs and provide further support for earnings growth.
/s/ Alec C. Murray
Alec C. Murray
Associate Director of Equity Research
The committee of MFS research analysts is responsible for the day-to-day
management of the fund under the general supervision of Mr. Murray.
The opinions expressed in this report are those of the Associate Director of
Equity Research and are current only through the end of the period of the
report as stated on the cover. His views are subject to change at any time
based on market and other conditions, and no forecasts can be guaranteed.
<PAGE>
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FUND FACTS
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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: $206.3 MILLION NET ASSETS AS OF AUGUST 31, 2000
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and reflect
the percentage change in net asset value, including reinvestment of dividends.
Benchmark comparisons are unmanaged and do not reflect any fees or expenses. The
performance of other share classes will be greater than or less than the line
shown. (See Notes to Performance Summary.) It is not possible to invest directly
in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 2000. Index information is from January 1,
1996.)
MFS
Research Growth
and S&P 500
Income Fund -- Class A Composite Index
---------------------- ---------------
January, 1996 $ 9,425 $10,000
August, 1996 10,490 10,745
August, 1997 14,290 15,113
August, 1998 15,194 16,336
August, 1999 19,546 22,842
August, 2000 22,235 26,570
<TABLE>
TOTAL RATES OF RETURN THROUGH AUGUST 31, 2000
<CAPTION>
CLASS A
1 Year 3 Years Life*
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +13.76% +55.60% +135.92%
------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +13.76% +15.88% + 20.21%
------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge + 7.22% +13.61% + 18.69%
------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
1 Year 3 Years Life*
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +12.98% +52.31% +128.88%
------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +12.98% +15.06% + 19.43%
------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge + 8.98% +14.30% + 19.21%
------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
1 Year 3 Years Life*
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +12.96% +52.26% +128.50%
------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +12.96% +15.04% + 19.39%
------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +11.96% +15.04% + 19.39%
------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS I
1 Year 3 Years Life*
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +14.12% +56.90% +138.68%
------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +14.12% +16.20% + 20.51%
------------------------------------------------------------------------------------------------------
<CAPTION>
COMPARATIVE INDICES(+)
1 Year 3 Years Life*
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average large cap value fund+ + 9.66% +13.04% + 13.92%
------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +16.32% +20.69% + 23.29%
------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, January 2, 1996, through
August 31, 2000. Index information is from January 1, 1996.
(+) Average annual rates of return.
+ Source: Lipper Inc.
# Source: Standard & Poor's Micropal, Inc.
</TABLE>
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 include 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
in effect during the periods shown; without these, the results would have been
less favorable. 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 AUGUST 31, 2000
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 28.6%
FINANCIAL SERVICES 17.9%
ENERGY 10.3%
INDUSTRIAL GOODS & SERVICES 8.7%
HEALTH CARE 7.5%
<TABLE>
TOP 10 STOCK HOLDINGS
<S> <C>
INTEL CORP. 5.0% CITIGROUP, INC. 2.4%
Semiconductor manufacturer Diversified financial services company
CISCO SYSTEMS, INC. 3.4% PHARMACIA CORP. 2.1%
Computer network developer Pharmaceutical, healthcare, and agricultural
products company
SUN MICROSYSTEMS, INC. 3.3%
Computer systems company AMERICAN HOME PRODUCTS CORP. 2.0%
Pharmaceutical and home products company
EMC CORP. 2.7%
Manufacturer of hardware and software for storage CORNING, INC. 1.9%
applications Optical equipment and cable supplier to
communications industries
EXXON MOBIL CORP. 2.4%
International oil and gas company MICROSOFT CORP. 1.9%
Computer software and systems company
The portfolio is actively managed, and current holdings may be different.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- August 31, 2000
Stocks - 95.2%
<CAPTION>
------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 85.1%
Aerospace - 1.8%
Boeing Co. 40,200 $ 2,155,725
United Technologies Corp. 25,420 1,587,161
------------
$ 3,742,886
------------------------------------------------------------------------------------------------------
Automotive - 0.4%
Delphi Automotive Systems Corp. 51,580 $ 847,846
------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 3.7%
Capital One Financial Corp. 24,520 $ 1,478,862
Chase Manhattan Corp. 41,385 2,312,387
PNC Bank Corp. 54,800 3,229,775
U.S. Bancorp 24,300 528,525
------------
$ 7,549,549
------------------------------------------------------------------------------------------------------
Business Machines - 5.8%
Hewlett-Packard Co. 17,500 $ 2,113,125
International Business Machines Corp. 26,100 3,445,200
Sun Microsystems, Inc.* 50,730 6,439,540
------------
$ 11,997,865
------------------------------------------------------------------------------------------------------
Business Services - 2.7%
Automatic Data Processing, Inc. 46,980 $ 2,801,183
Computer Sciences Corp.* 35,300 2,790,906
------------
$ 5,592,089
------------------------------------------------------------------------------------------------------
Chemicals - 0.2%
Eastman Chemical Co. 9,570 $ 412,706
------------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 0.4%
Compaq Computer Corp. 25,300 $ 861,781
------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 1.8%
Microsoft Corp.* 52,530 $ 3,667,251
------------------------------------------------------------------------------------------------------
Computer Software - Services - 2.6%
EMC Corp.* 54,200 $ 5,311,600
------------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.9%
Comverse Technology, Inc.* 700 $ 64,356
Extreme Networks, Inc.* 1,400 130,288
Oracle Corp.* 39,930 3,631,134
------------
$ 3,825,778
------------------------------------------------------------------------------------------------------
Conglomerates - 1.6%
Tyco International Ltd. 58,514 $ 3,335,298
------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 1.1%
Colgate-Palmolive Co. 33,980 $ 1,730,856
Fortune Brands, Inc. 24,900 634,950
------------
$ 2,365,806
------------------------------------------------------------------------------------------------------
Containers - 0.1%
Owens Illinois, Inc.* 16,520 $ 215,793
------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.1%
General Electric Co. 38,400 $ 2,253,600
------------------------------------------------------------------------------------------------------
Electronics - 6.4%
Intel Corp. 132,260 $ 9,902,967
Micron Technology, Inc.* 9,600 784,800
SCI Systems, Inc.* 22,200 1,370,850
Solectron Corp.* 23,400 1,060,313
------------
$ 13,118,930
------------------------------------------------------------------------------------------------------
Energy - 0.5%
Sierra Pacific Resources 60,402 $ 1,068,360
------------------------------------------------------------------------------------------------------
Entertainment - 2.6%
Time Warner, Inc. 32,143 $ 2,748,226
Viacom, Inc., "B"* 38,200 2,571,338
------------
$ 5,319,564
------------------------------------------------------------------------------------------------------
Financial Institutions - 5.8%
Associates First Capital Corp., "A" 43,240 $ 1,216,125
Citigroup, Inc. 79,386 4,634,158
FleetBoston Financial Corp. 52,184 2,227,604
FNMA 15,800 849,250
Freddie Mac Corp. 73,600 3,100,400
------------
$ 12,027,537
------------------------------------------------------------------------------------------------------
Financial Services - 1.1%
AXA Financial, Inc. 45,810 $ 2,370,668
------------------------------------------------------------------------------------------------------
Food and Beverage Products - 3.0%
Anheuser-Busch Cos., Inc. 22,040 $ 1,737,028
Keebler Foods Co. 49,440 2,264,970
Quaker Oats Co. 31,080 2,111,497
------------
$ 6,113,495
------------------------------------------------------------------------------------------------------
Insurance - 4.9%
American International Group, Inc. 21,347 $ 1,902,551
Gallagher (Arthur J.) & Co. 53,270 2,610,230
Hartford Financial Services Group, Inc. 30,170 2,010,076
Marsh & McLennan Cos., Inc. 7,900 938,125
Nationwide Financial Services, Inc., "A" 65,300 2,603,838
------------
$ 10,064,820
------------------------------------------------------------------------------------------------------
Machinery - 2.1%
Deere & Co., Inc. 38,710 $ 1,275,011
Ingersoll Rand Co. 26,530 1,208,773
W.W. Grainger, Inc. 66,670 1,925,096
------------
$ 4,408,880
------------------------------------------------------------------------------------------------------
Medical and Health Products - 5.7%
American Home Products Corp. 73,830 $ 4,000,663
Bristol-Myers Squibb Co. 54,060 2,865,180
Pfizer, Inc. 16,900 730,925
Pharmacia Corp. 70,854 4,149,388
------------
$ 11,746,156
------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 1.5%
Medtronic, Inc. 59,100 $ 3,028,875
------------------------------------------------------------------------------------------------------
Metals and Minerals - 1.0%
Alcoa, Inc. 59,940 $ 1,993,005
------------------------------------------------------------------------------------------------------
Oils - 7.2%
Baker Hughes, Inc. 27,100 $ 990,844
Conoco, Inc. 131,070 3,424,204
Cooper Cameron Corp.* 12,730 990,553
Exxon Mobil Corp. 57,206 4,669,440
Global Marine, Inc.* 63,300 2,045,381
Santa Fe International Corp. 27,500 1,081,094
Weatherford International, Inc.* 34,600 1,624,037
------------
$ 14,825,553
------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.8%
Tribune Co. 48,140 $ 1,717,996
------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.9%
Highwoods Properties, Inc. 74,240 $ 1,786,400
------------------------------------------------------------------------------------------------------
Retail - 3.2%
CVS Corp. 90,580 $ 3,362,783
Wal-Mart Stores, Inc. 70,400 3,339,600
------------
$ 6,702,383
------------------------------------------------------------------------------------------------------
Supermarkets - 2.1%
Kroger Co.* 48,720 $ 1,105,335
Safeway, Inc.* 63,540 3,133,316
------------
$ 4,238,651
------------------------------------------------------------------------------------------------------
Telecommunications - 8.2%
Allegiance Telecom, Inc.* 1,100 $ 54,794
Cabletron Systems, Inc.* 29,100 1,089,431
CIENA Corp.* 3,300 731,569
Cisco Systems, Inc.* 97,880 6,717,015
Corning, Inc. 11,591 3,801,124
EchoStar Communications Corp.* 17,100 833,625
Level 3 Communications, Inc.* 10,900 950,855
Motorola, Inc. 41,180 1,485,054
Qwest Communications International, Inc.* 7,520 388,220
SBA Communcations Corp.* 4,700 209,737
Tellabs, Inc.* 8,600 483,212
TyCom, Ltd.* 5,300 220,612
------------
$ 16,965,248
------------------------------------------------------------------------------------------------------
Utilities - Electric - 1.3%
CMS Energy Corp. 36,410 $ 951,211
PECO Energy Co. 36,250 1,746,797
------------
$ 2,698,008
------------------------------------------------------------------------------------------------------
Utilities - Gas - 1.6%
Columbia Energy Group 30,710 $ 2,155,458
Enron Corp. 14,200 1,205,225
------------
$ 3,360,683
------------------------------------------------------------------------------------------------------
Total U.S. Stocks $175,535,060
------------------------------------------------------------------------------------------------------
Foreign Stocks - 10.1%
Bermuda - 0.7%
Global Crossing Ltd. (Telecommunications)* 47,460 $ 1,426,766
------------------------------------------------------------------------------------------------------
Brazil - 1.1%
Empresa Brasileira de Aeronautica S.A., ADR
(Aerospace and Defense)* 84,040 $ 2,295,343
------------------------------------------------------------------------------------------------------
Canada - 2.2%
Canadian National Railway Co. (Railroads) 69,588 $ 2,048,497
Nortel Networks Corp. (Telecommunications) 29,360 2,394,675
------------
$ 4,443,172
------------------------------------------------------------------------------------------------------
Israel - 0.3%
Check Point Software Technologies Ltd. (Computer
Software - Services)* 4,000 $ 583,250
------------------------------------------------------------------------------------------------------
Japan - 0.8%
Fast Retailing Co. "New" (Retail)* 1,200 $ 192,720
Fast Retailing Co. (Retail) 1,200 192,721
Nippon Telegraph & Telephone Co. (Utilities - Telephone) 108 1,286,679
------------
$ 1,672,120
------------------------------------------------------------------------------------------------------
Netherlands - 1.6%
ING Groep N.V. (Financial Services)* 20,154 $ 1,348,503
Royal Dutch Petroleum Co. (Oils) 30,400 1,847,921
------------
$ 3,196,424
------------------------------------------------------------------------------------------------------
Switzerland - 0.3%
Nestle S.A. (Food and Beverage Products) 321 $ 691,952
------------------------------------------------------------------------------------------------------
United Kingdom - 3.1%
BAE Systems PLC (Aerospace)* 180,400 $ 1,122,642
BP Amoco PLC, ADR (Oils) 65,156 3,599,869
Lloyds TSB Group PLC (Banks and Credit Cos.)* 620 5,828
Vodafone Group PLC (Telecommunications)* 437,293 1,765,043
------------
$ 6,493,382
------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 20,802,409
------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $143,536,380) $196,337,469
------------------------------------------------------------------------------------------------------
Short-Term Obligations - 4.9%
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Discount Note, due 9/01/00
at Amortized Cost $ 10,100 $ 10,100,000
------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $153,636,380) $206,437,469
Other Assets, Less Liabilities - (0.1)% (161,030)
------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $206,276,439
------------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
-------------------------------------------------------------------------------
AUGUST 31, 2000
-------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $153,636,380) $206,437,469
Investments of cash collateral for securities loaned, at
identified cost and value 3,887,893
Cash 47,256
Foreign currency, at value (identified cost, $58) 55
Receivable for fund shares sold 57,471
Net receivable for forward foreign currency exchange
contracts subject to master netting agreements 29,665
Interest and dividends receivable 234,103
Deferred organization expenses 146
Other assets 1,686
------------
Total assets $210,695,744
------------
Liabilities:
Payable for fund shares reacquired $ 412,795
Payable for investments purchased 31,671
Collateral for securities loaned, at value 3,887,893
Payable to affiliates -
Management fee 3,673
Shareholder servicing agent fee 565
Distribution and service fee 4,320
Administrative fee 99
Accrued expenses and other liabilities 78,289
------------
Total liabilities $ 4,419,305
------------
Net assets $206,276,439
============
Net assets consist of:
Paid-in capital $158,002,481
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 52,830,150
Accumulated net realized loss on investments and foreign
currency transactions (4,494,607)
Accumulated net investment loss (61,585)
------------
Total $206,276,439
============
Shares of beneficial interest outstanding 11,076,484
==========
Class A shares:
Net asset value per share
(net assets of $73,910,376 / 3,927,216 shares of
beneficial interest outstanding) $18.82
======
Offering price per share (100 / 94.25 of net asset value
per share) $19.97
======
Class B shares:
Net asset value and offering price per share
(net assets of $111,379,730 / 6,013,480 shares of
beneficial interest outstanding) $18.52
======
Class C shares:
Net asset value and offering price per share
(net assets of $20,432,065 / 1,106,546 shares of
beneficial interest outstanding) $18.46
======
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $554,268 / 29,242 shares of
beneficial interest outstanding) $18.95
======
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.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
-------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2000
-------------------------------------------------------------------------------
Net investment loss:
Income -
Dividends $ 2,526,605
Interest 279,364
Income on securities loaned 15,010
Foreign taxes withheld (21,921)
-----------
Total investment income $ 2,799,058
-----------
Expenses -
Management fee $ 1,289,488
Trustees' compensation 44,940
Shareholder servicing agent fee 198,383
Distribution and service fee (Class A) 250,752
Distribution and service fee (Class B) 1,061,395
Distribution and service fee (Class C) 200,588
Administrative fee 27,384
Custodian fee 86,361
Printing 48,437
Postage 27,020
Auditing fees 31,242
Legal fees 2,472
Amortization of organization expenses 436
Miscellaneous 177,236
-----------
Total expenses $ 3,446,134
Reduction of expenses by distributor (25,387)
Fees paid indirectly (19,393)
-----------
Net expenses $ 3,401,354
-----------
Net investment loss $ (602,296)
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(3,944,431)
Foreign currency transactions 84,885
-----------
Net realized loss on investments and foreign currency
transactions $(3,859,546)
-----------
Change in unrealized appreciation -
Investments $28,839,710
Translation of assets and liabilities in foreign currencies 28,927
-----------
Net unrealized gain on investments and foreign currency
translation $28,868,637
-----------
Net realized and unrealized gain on investments and
foreign currency $25,009,091
-----------
Increase in net assets from operations $24,406,795
===========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
----------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (602,296) $ (338,645)
Net realized gain (loss) on investments and foreign
currency transactions (3,859,546) 15,970,060
Net unrealized gain on investments and foreign currency
translation 28,868,637 25,736,868
------------ ------------
Increase in net assets from operations $ 24,406,795 $ 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) (5,596,626) (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 $(15,621,070) $ (6,561,961)
------------ ------------
Net increase (decrease) in net assets from fund share
transactions $(13,959,911) $ 34,164,183
------------ ------------
Total increase (decrease) in net assets $ (5,174,186) $ 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 $61,585 and $18,895, respectively) $206,276,439 $211,450,625
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
----------------------------------------------------------- AUGUST 31,
2000 1999 1998 1997 1996*
----------------------------------------------------------------------------------------------------------------------------
CLASS A
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of
period $17.87 $14.42 $14.12 $11.13 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.02 $ 0.05 $ 0.09 $ 0.07 $ 0.05
Net realized and unrealized gain
on investments and foreign
currency 2.26 4.03 0.78 3.02 1.08
------ ------ ------ ------ ------
Total from investment
operations $ 2.28 $ 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 $18.82 $17.87 $14.42 $14.12 $11.13
====== ====== ====== ====== ======
Total return(+) 13.76% 28.64% 6.33% 36.22% 11.30%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.28% 1.23% 1.29% 1.51% 1.55%+
Net investment income 0.13% 0.30% 0.56% 0.56% 0.65%+
Portfolio turnover 74% 96% 101% 106% 58%
Net assets at end of period
(000 Omitted) $73,910 $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) $ 0.01 $ 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) 0.09% 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 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.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
------------------------------------------------ AUGUST 31,
2000 1999 1998 1997*
----------------------------------------------------------------------------------------------------------------------------
CLASS B
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $17.72 $14.40 $14.11 $12.01
------ ------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.09) $(0.08) $(0.03) $(0.02)
Net realized and unrealized gain on investments
and foreign currency 2.22 4.02 0.80 2.13
------ ------ ------ ------
Total from investment operations $ 2.13 $ 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 $18.52 $17.72 $14.40 $14.11
====== ====== ====== ======
Total return 12.98% 27.74% 5.54% 17.56%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.96% 1.98% 2.03% 2.26%+
Net investment loss (0.55)% (0.45)% (0.19)% (0.22)%+
Portfolio turnover 74% 96% 101% 106%
Net assets at end of period (000 Omitted) $111,380 $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 shares, 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 certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
------------------------------------------------ AUGUST 31,
2000 1999 1998 1997*
----------------------------------------------------------------------------------------------------------------------------
CLASS C
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $17.67 $14.36 $14.08 $12.00
------ ------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.09) $(0.08) $(0.03) $(0.02)
Net realized and unrealized gain on investments
and foreign currency 2.21 4.01 0.80 2.11
------ ------ ------ ------
Total from investment operations $ 2.12 $ 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 $18.46 $17.67 $14.36 $14.08
====== ====== ====== ======
Total return 12.96% 27.66% 5.59% 17.41%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.96% 1.98% 2.03% 2.26%+
Net investment loss (0.55)% (0.46)% (0.19)% (0.21)%+
Portfolio turnover 74% 96% 101% 106%
Net assets at end of period (000 Omitted) $20,432 $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 shares, 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 certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
------------------------------------------------ AUGUST 31,
2000 1999 1998 1997*
----------------------------------------------------------------------------------------------------------------------------
CLASS I
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $17.93 $14.47 $14.16 $12.01
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.08 $ 0.09 $ 0.13 $ 0.08
Net realized and unrealized gain on investments
and foreign currency 2.27 4.05 0.78 2.11
------ ------ ------ ------
Total from investment operations $ 2.35 $ 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 $18.95 $17.93 $14.47 $14.16
====== ====== ====== ======
Total return 14.12% 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 0.45% 0.56% 0.80% 0.87%+
Portfolio turnover 74% 96% 101% 106%
Net assets at end of period (000 Omitted) $554 $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 shares, 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 certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Research Growth and Income Fund (the fund) is a diversified series of MFS
Series Trust I (the trust). The trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 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
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 August 31, 2000, the value of securities loaned was $3,725,579. These loans
were collateralized cash of $3,887,893 which was invested in the following
short-term obligations:
SHARES VALUE
-------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at amortized cost 3,887,893 $3,887,893
Forward Foreign Currency Exchange Contracts - The fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The fund may enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the fund may
enter into contracts with the intent of changing the relative exposure of the
fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The fund's custody fee is 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 total 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 net 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 only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. During
the year ended August 31, 2000, $559,606 and $365,030, respectively, were
reclassified from accumulated undistributed net realized loss on investments and
foreign currency transactions to accumulated net investment loss and paid-in
capital due to differences between book and tax accounting for foreign currency
transactions and the offset of net investment loss against short-term capital
gains. This change had no effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The fund offers multiple
classes of shares that 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. Included in Trustees' compensation is a net
periodic pension expense of $13,132 for the year ended August 31, 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 incurs an administrative fee at
the following annual percentages of the fund's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$44,020 for the year ended August 31, 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. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $9,691 for the year ended August 31, 2000.
Fees incurred under the distribution plan during the year ended August 31, 2000,
were 0.31% 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 $17,087 and $26,971 for
Class B and Class C shares, respectively, for the year ended August 31, 2000.
Fees incurred under the distribution plan during the year ended August 31,
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 year ended August 31, 2000,
were $1,687, $276,751, and $7,902 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 purchased option transactions and
short-term obligations, were as follows:
PURCHASES SALES
------------------------------------------------------------------------------
U.S. government securities $ 4,660,802 $ 291,694
------------ ------------
Investments (non-U.S. government securities) $139,981,507 $175,004,693
------------ ------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $155,006,462
------------
Gross unrealized appreciation $ 58,260,288
Gross unrealized depreciation (6,829,281)
------------
Net unrealized appreciation $ 51,431,007
============
(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
YEAR ENDED AUGUST 31, 2000 YEAR ENDED AUGUST 31, 1999
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,472,088 $ 25,310,878 3,645,443 $ 63,306,652
Shares issued to shareholders in
reinvestment of distributions 312,728 5,203,755 139,764 2,271,173
Shares reacquired (2,147,145) (36,857,511) (3,117,317) (54,205,988)
---------- ------------ ---------- ------------
Net increase (decrease) (362,329) $ (6,342,878) 667,890 $ 11,371,837
========== ============ ========== ============
<CAPTION>
Class B shares
YEAR ENDED AUGUST 31, 2000 YEAR ENDED AUGUST 31, 1999
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,198,314 $ 20,525,331 2,395,114 $ 41,522,632
Shares issued to shareholders in
reinvestment of distributions 443,847 7,305,773 188,815 3,058,783
Shares reacquired (1,949,870) (32,874,283) (1,544,500) (26,910,916)
---------- ------------ ---------- ------------
Net increase (decrease) (307,709) $ (5,043,179) 1,039,429 $ 17,670,499
========== ============ ========== ============
<CAPTION>
Class C shares
YEAR ENDED AUGUST 31, 2000 YEAR ENDED AUGUST 31, 1999
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 891,043 $ 15,108,000 858,873 $ 14,963,918
Shares issued to shareholders in
reinvestment of distributions 75,054 1,231,647 31,558 509,969
Shares reacquired (1,108,903) (18,707,421) (560,128) (9,863,028)
---------- ------------ ---------- ------------
Net increase (decrease) (142,806) $ (2,367,774) 330,303 $ 5,610,859
========== ============ ========== ============
<CAPTION>
Class I shares
YEAR ENDED AUGUST 31, 2000 YEAR ENDED AUGUST 31, 1999
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 39,692 $ 703,033 7,169 $ 122,855
Shares issued to shareholders in
reinvestment of distributions 2,856 47,760 2,910 47,375
Shares reacquired (54,674) (956,873) (38,533) (659,242)
---------- ------------ ---------- ------------
Net decrease (12,126) $ (206,080) (28,454) $ (489,012)
========== ============ ========== ============
</TABLE>
(6) Line of Credit
The fund and other affiliated funds participate in a $1.1 billion unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the bank's base rate.
Interest expense incurred on the borrowings amounted to $202 for the year ended
August 31, 2000. The average dollar amount of borrowings was $149,931 and the
weighted average interest rate on these borrowings was 6.439%. A commitment fee
of $1,544 which is based on the average daily unused portion of the line of
credit is included in miscellaneous expense.
(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 written options, forward foreign currency exchange
contracts, swap agreements, and futures 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
At August 31, 2000, forward foreign currency purchases and sales under master
netting agreements amounted to a net receivable of $29,665 with Merrill Lynch.
<PAGE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Trustees of the MFS Series Trust I and the Shareholders of
MFS Research Growth and Income Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Research Growth and Income Fund (the Fund), including the schedule of portfolio
investments, as of August 31, 2000, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended, and for the period from January 2, 1996
(commencement of operations) to August 31, 1996. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned at August 31, 2000, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Research Growth and Income Fund at August 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the four years in the period then ended, and for the period from January 2, 1996
(commencement of operations) to August 31, 1996, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 9, 2000
--------------------------------------------
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.
<PAGE>
-------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
-------------------------------------------------------------------------------
IN JANUARY 2001, SHAREHOLDERS WILL BE MAILED A FORM 1099-DIV REPORTING
THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR
YEAR 2000.
THE FUND HAS DESIGNATED $15,621,070 AS A CAPITAL GAIN DIVIDEND FOR THE
YEAR ENDED AUGUST 31, 2000.
-------------------------------------------------------------------------------
<PAGE>
<TABLE>
MFS(R) RESEARCH GROWTH AND INCOME FUND
<S> <C>
TRUSTEES ASSISTANT TREASURERS
Marshall N. Cohan+ - Private Investor Mark E. Bradley*
Robert R. Flaherty*
Lawrence H. Cohn, M.D.+ - Chief of Cardiac Laura F. Healy*
Surgery, Brigham and Women's Hospital; Ellen Moynihan*
Professor of Surgery, Harvard Medical School
SECRETARY
The Hon. Sir J. David Gibbons, KBE+ - Chief Stephen E. Cavan*
Executive Officer, Edmund Gibbons Ltd.;
Chairman, Colonial Insurance Company, Ltd. ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Abby M. O'Neill+ - Private Investor
CUSTODIAN
Walter E. Robb, III+ - President and Treasurer, State Street Bank and Trust Company
Benchmark Advisors, Inc. (corporate financial
consultants); President, Benchmark Consulting AUDITORS
Group, Inc. (office services) Ernst & Young LLP
Arnold D. Scott* - Senior Executive INVESTOR INFORMATION
Vice President, Director, and Secretary, For information on MFS mutual funds, call your
MFS Investment Management investment professional or, for an information
kit, call toll free: 1-800-637-2929 any
Jeffrey L. Shames* - Chairman and Chief business day from 9 a.m. to 5 p.m. Eastern time
Executive Officer, MFS Investment Management (or leave a message anytime).
J. Dale Sherratt+ - President, Insight INVESTOR SERVICE
Resources, Inc. (acquisition planning MFS Service Center, Inc.
specialists) P.O. Box 2281
Boston, MA 02107-9906
Ward Smith+ - Former Chairman (until 1994),
NACCO Industries (holding company) For general information, call toll free:
1-800-225-2606 any business day from
INVESTMENT ADVISER 8 a.m. to 8 p.m. Eastern time.
Massachusetts Financial Services Company
500 Boylston Street For service to speech- or hearing-impaired,
Boston, MA 02116-3741 call toll free: 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time. (To use
DISTRIBUTOR this service, your phone must be equipped with
MFS Fund Distributors, Inc. a Telecommunications Device for the Deaf.)
500 Boylston Street
Boston, MA 02116-3741 For share prices, account balances, exchanges,
or stock and bond outlooks, call toll free:
CHAIRMAN AND PRESIDENT 1-800-MFS-TALK (1-800-637-8255) anytime from a
Jeffrey L. Shames* touch-tone telephone.
ASSOCIATE DIRECTOR OF EQUITY RESEARCH WORLD WIDE WEB
Alec C. Murray* www.mfs.com
TREASURER
James O. Yost*
+ Independent Trustee
* MFS Investment Management
</TABLE>
<PAGE>
------------
MFS(R) RESEARCH GROWTH BULK RATE
AND INCOME FUND U.S. POSTAGE
PAID
[Logo] M F S(R) MFS
INVESTMENT MANAGEMENT ------------
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-2 10/00 23M 91/291/391/891
