<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) NEW
DISCOVERY FUND
ANNUAL REPORT o AUGUST 31, 2000
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 5
Performance Summary ....................................................... 10
Portfolio of Investments .................................................. 14
Financial Statements ...................................................... 21
Notes to Financial Statements ............................................. 28
Independent Auditors' Report .............................................. 34
Trustees and Officers ..................................................... 37
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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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 Brian E. Stack]
Brian E. Stack
For the 12 months ended August 31, 2000, Class A shares of the fund provided a
total return of 76.63%, Class B shares 75.50%, Class C shares 75.57%, and Class
I shares 77.22%. These returns include the reinvestment of any distributions but
exclude the effects of any sales charges and compare to a 27.15% return over the
same period for the fund's benchmark, the Russell 2000 Total Return Index (the
Russell 2000), an unmanaged index comprised of 2,000 of the smallest
U.S.-domiciled company common stocks that are traded on the New York Stock
Exchange, the American Stock Exchange, and NASDAQ. During the same period, the
average small cap growth fund tracked by Lipper Inc., an independent firm that
reports mutual fund performance, returned 66.23%.
Q. TO WHAT DO YOU ATTRIBUTE THE PORTFOLIO'S STRONG PERFORMANCE OVER THE PERIOD?
A. The major contributor to performance was strong individual stock selection,
particularly in the technology, health care, and energy sectors. In our
view, technology continues to be the biggest long-term growth phenomenon in
the market, driven by the networking of both the home and the workplace and
the use of technology to increase productivity. In particular, we have found
opportunities in select companies in the areas of networking hardware,
software, and components.
We feel a key to stock selection is distinguishing between companies with
truly defensible long-term businesses and those that turn out to be flashes
in the pan; that is where we think our Original Research(SM) process gives
us an edge. Recently, we had several instances in which large companies
apparently agreed with our technology stock picks, because they took over
companies that we held -- at a significant premium to our purchase price.
Network Solutions, the worldwide registrar for Internet domain names, was
acquired by VeriSign; semiconductor manufacturer Burr-Brown by Texas
Instruments; and, as the period ended, integrated circuit manufacturer MMC
Networks was in the process of being acquired by Applied Micro Circuits.
Q. COULD YOU EXPLAIN HOW ORIGINAL RESEARCH HELPED UNCOVER THESE OPPORTUNITIES?
A. MMC Networks provides a good illustration of our research process. In that
case our research involved a combination of intelligence gathered at trade
shows, conversations with other companies that said they were likely to
increase their business with MMC, and careful analysis of what we believe
MMC's stock might be worth over a three- to four-year timeframe.
MMC is a provider of integrated circuits used in computer networking. About
a year ago its stock suffered badly when quarterly earnings came in below
expectations. But our research allowed us to see that the company was, in
fact, strengthening its business with Cisco Systems, its number-one
customer. Our analysts felt that MMC was moving into an area of networking
where product life cycles have historically been longer and profit margins
have been larger; as a result, we believed their business model would be
considerably strengthened over the next year or two. So we accumulated a
significant position in the stock at a time when it was out of favor with
the market. Subsequently, MMC put their short-term problems behind them and
posted strong earnings before receiving a buyout offer this past summer.
Q. YOU MENTIONED THAT HEALTH CARE AND ENERGY STOCKS WERE ALSO IMPORTANT
CONTRIBUTORS TO PERFORMANCE. COULD YOU ELABORATE ON THAT?
A. In the health care sector, our two big performers were IMPATH, a health care
services company that focuses on clinical information about cancer, and
Caremark Rx, our top holding. Caremark is a company in the pharmacy benefit
management (PBM) business that until recently was relatively unknown. It
manages drug benefits for HMOs and employers, addressing an urgent need to
contain prescription drug inflation.
When we began looking at the company, we concluded that Caremark was the
second-largest independent PBM, the fastest growing in terms of revenue, and
the leader in profit margins. Most importantly, we discovered two assets
that we felt had been ignored by the market and were not reflected in
Caremark's stock price. In addition to the PBM business, Caremark has a
division that does chronic disease management. The company also has a net
operating loss from a predecessor business, which is a tax loss that can be
applied against future profits. We calculated that these two components of
Caremark alone were worth the entire stock price at the time we began buying
Caremark shares, meaning in essence that at the existing price we were
getting the thriving PBM business for free. The portfolio acquired a strong
position in Caremark, which has already appreciated considerably this year.
Based on our projections of future business, we believe the company has the
potential to achieve more visibility in the market and to continue to do
quite well.
In regard to the energy sector, we built positions in a variety of natural
gas and offshore oil drilling companies in late 1999 and early 2000, when
these companies were out of favor due to low energy prices. As energy prices
exploded this year, these companies have performed strongly.
Q. HOW DID YOU DEAL WITH THE MARKET TURBULENCE THIS PAST SPRING?
A. Part of our approach is that we don't view a turbulent market as being our
enemy. When we have conviction about a stock, we generally don't sell it
simply because the price is down. To the extent that we do have conviction,
we're more inclined to use a correction as an opportunity to accumulate more
stock in a company if we believe its stock is being sold down for no good
fundamental reason.
We also used this recent correction to initiate positions in quality
companies that we didn't own a year ago because we felt their valuations
were overly high. This spring's market turbulence brought their stock prices
down to where we felt there were opportunities for strong returns.
Q. HOW HAS THE MARKET ENVIRONMENT CHANGED RECENTLY, AND WHERE DO YOU EXPECT
THE OPPORTUNITIES TO BE GOING FORWARD?
A. As opposed to last year, the market today seems much less inclined to reward
companies that have a big story to tell but not necessarily any prognosis
for near-term earnings. The market has typically rewarded companies that
have sound fundamentals -- such as cash flow and earnings growth, increasing
market share, and strong management -- and have sold at reasonable
valuations relative to earnings. This is in contrast to 1999, when we
watched a lot of companies rise to valuations that we didn't think in our
wildest dreams could be supported. We believe today's market environment
plays to our strength as research-based, bottom-up investors who look for
stocks offering growth at a reasonable price.
Looking at specific areas of the market, we think technology and energy will
continue to be areas of opportunity. We believe demand for crude oil and
natural gas is strong enough that oil drilling and exploration and
production companies could continue to do well even if commodity prices drop
moderately.
A third area of opportunity, we believe, is business services companies.
These are firms that use computing and communications tools to deliver an
intangible service. SmartForce, for example, is a company that provides
Internet-based training for computer professionals who need to learn about
the newest hardware and software. What we like about these companies is that
they have tended to enjoy many of the positive characteristics of technology
companies, such as high growth rates, but also have tended to have more
predictable revenues. In addition, they have benefited directly from the
declining cost of technology because that has reduced their cost of doing
business.
/s/ Brian E. Stack
Brian E. Stack
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
Note to shareholders: Effective April 14, 2000, the fund is no longer for sale
to new shareholders, except for participants making contributions through
retirement or college savings plans qualified under sections 401(a) or 403(b),
or 529 of the Internal Revenue Code of 1986, as amended. Shares of the fund will
continue to be available for sale to current shareholders of the fund.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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BRIAN E. STACK IS SENIOR VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R) AND
PORTFOLIO MANAGER OF THE SMALL CAP GROWTH PORTFOLIOS OF OUR MUTUAL FUNDS,
VARIABLE ANNUITIES, AND INSTITUTIONAL ACCOUNTS.
BRIAN JOINED MFS IN 1993 AS A RESEARCH ANALYST FOLLOWING THE CHEMICAL, HOSPITAL
MANAGEMENT, HEALTH MAINTENANCE ORGANIZATIONS, MEDICAL SERVICES, AND BUSINESS
SERVICES INDUSTRIES. HE WAS NAMED PORTFOLIO MANAGER IN 1996 AND SENIOR VICE
PRESIDENT IN 1999. PRIOR TO JOINING MFS, HE HAD WORKED AS AN EQUITY ANALYST
SINCE 1987. HE IS A GRADUATE OF BOSTON COLLEGE AND HAS AN M.B.A. DEGREE FROM THE
UNIVERSITY OF VIRGINIA.
ALL EQUITY PORTFOLIO MANAGERS BEGAN THEIR CAREERS AT MFS INVESTMENT
MANAGEMENT(R) AS RESEARCH ANALYSTS. OUR PORTFOLIO MANAGERS ARE SUPPORTED BY AN
INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL RESEARCH(R), A
GLOBAL, COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING SECURITIES.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any MFS
product is available from your investment professional, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS CAPITAL APPRECIATION.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 2, 1997
CLASS INCEPTION: CLASS A JANUARY 2, 1997
CLASS B NOVEMBER 3, 1997
CLASS C NOVEMBER 3, 1997
CLASS I JANUARY 2, 1997
SIZE: $1.6 BILLION 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 the 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, 1997, through August 31, 2000. Index information is from January 1,
1997.)
MFS New Russell 2000
Discovery Fund Total Return
- Class A Index
--------------------------------------------------------------------------------
1/97 $ 9,425 $10,000
8/97 12,318 9,509
8/98 11,718 12,205
8/99 16,222 15,520
8/00 28,653 18,079
TOTAL RATES OF RETURN THROUGH AUGUST 31, 2000
<TABLE>
<CAPTION>
CLASS A
1 Year 3 Years Life*
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<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +76.63% +132.60% +204.01%
-------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +76.63% + 32.50% + 35.50%
-------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +66.47% + 29.91% + 33.32%
-------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
1 Year 3 Years Life*
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +75.50% +128.58% +198.75%
-------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +75.50% + 31.73% + 34.85%
-------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +71.50% + 31.15% + 34.48%
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<CAPTION>
CLASS C
1 Year 3 Years Life*
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +75.57% +128.82% +199.07%
-------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +75.57% + 31.78% + 34.89%
-------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +74.57% + 31.78% + 34.89%
-------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS I
1 Year 3 Years Life*
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +77.22% +135.35% +207.84%
-------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +77.22% + 33.02% + 35.96%
-------------------------------------------------------------------------------------------------------
<CAPTION>
COMPARATIVE INDICES(+)
1 Year 3 Years Life*
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average small cap growth fund+ +66.23% + 24.23% + 23.66%
-------------------------------------------------------------------------------------------------------
Russell 2000 Total Return Index# +27.15% + 9.57% + 12.73%
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* For the period from the commencement of the fund's investment operations, January 2, 1997, through
August 31, 2000. Index information is from January 1, 1997.
(+) 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 Shares 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 and C 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. These blended performance figures have not been adjusted to
take into account differences in class-specific operating expenses. Because
operating expenses of 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.
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. RECENT RETURNS WERE
PRIMARILY ACHIEVED DURING FAVORABLE MARKET CONDITIONS, WHICH MAY NOT BE
REPEATED. MORE RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investing in small or emerging growth companies involves greater risk than is
customarily associated with more-established companies. These risks may increase
share price volatility. See the prospectus for details.
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 2000
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 41.9%
SPECIAL PRODUCTS & SERVICES 16.5%
HEALTH CARE 15.7%
ENERGY 11.8%
UTILITIES & COMMUNICATIONS 3.9%
TOP 10 STOCK HOLDINGS
CAREMARK RX, INC. 4.4% NOBLE DRILLING CORP. 1.7%
Health care cost-containment company Provider of drilling services to the
oil and gas industries
MMC NETWORKS, INC. 3.5%
Developer and supplier of network INTERMEDIA COMMUNICATIONS, INC. 1.6%
processing platforms Telecommunications services provider
RSA SECURITY, INC. 2.8% CONCORD EFS, INC. 1.5%
Provider of network and data Provider of electronic transaction
security software services
ASPEN TECHNOLOGY, INC. 1.9% DUPONT PHOTOMASKS, INC. 1.5%
Software supplier to manufacturing Supplier of photomasks to semiconductor
industries manufacturers
SMARTFORCE PLC 1.8% EMULEX CORP. 1.4%
Provider of information technology (IT) Provider of products that enhance
education software access to electronic data and
applications
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO OF INVESTMENTS -- August 31, 2000
<TABLE>
<CAPTION>
Stocks - 94.6%
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ISSUER SHARES VALUE
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<S> <C> <C>
U.S. Stocks - 91.9%
Advertising - 0.1%
24/7 Media, Inc.* 136,896 $ 1,976,436
--------------------------------------------------------------------------------------------------
Airlines - 0.8%
Atlas Air, Inc.* 114,613 $ 4,957,012
Skywest, Inc. 149,767 7,441,548
--------------
$ 12,398,560
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Agricultural Products - 0.5%
Delta and Pine Land Co. 327,600 $ 8,005,725
--------------------------------------------------------------------------------------------------
Business Machines - 1.8%
Affiliated Computer Services, Inc., "A"*# 423,859 $ 19,735,934
Texas Instruments, Inc. 153,013 10,242,308
--------------
$ 29,978,242
--------------------------------------------------------------------------------------------------
Business Services - 14.0%
BISYS Group, Inc.* 223,936 $ 16,865,180
Braun Consulting, Inc.* 163,300 2,653,625
Carbo Ceramics, Inc. 146,430 5,317,239
Complete Business Solutions, Inc.* 440,900 5,952,150
Computer Horizons Corp.* 226,500 2,165,906
Concord EFS, Inc.* 709,100 22,779,837
Dendrite International, Inc.* 437,049 11,609,114
Diamond Technology Partners, Inc., "A"* 71,050 4,533,878
EGL, Inc.* 439,100 15,780,156
eLoyalty Corp.* 1,191,360 16,232,280
Gartner Group, Inc., "A"* 260,100 3,446,325
iGATE Capital Corp.* 73,535 535,427
IMRglobal Corp.* 917,300 10,892,937
infoUSA, Inc.* 600,665 3,716,615
Meta Group, Inc.* 168,649 2,445,411
Mettler Toledo International, Inc.* 145,700 6,893,431
Modis Professional Services, Inc.* 827,011 5,685,701
National Data Corp. 589,746 17,323,789
Navigant Consulting Co.* 960,600 3,842,400
NCO Group, Inc.* 443,300 7,702,338
Nextera Enterprises, Inc.* 33,600 126,000
NOVA Corp.* 1,010,272 14,522,660
Peregrine Systems, Inc.* 516,576 16,498,146
Probusiness Services, Inc.* 231,700 5,097,400
Radiant Systems, Inc.* 621,400 10,641,475
S1 Corp.* 367,841 6,414,227
Spherion Corp.* 344,200 4,237,963
Technology Solutions Co.* 928,360 2,872,114
--------------
$ 226,783,724
--------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 1.2%
HNC Software, Inc.* 199,100 $ 10,832,284
Verity, Inc.* 195,100 8,925,825
--------------
$ 19,758,109
--------------------------------------------------------------------------------------------------
Computer Software - Services - 7.3%
Bottomline Technologies, Inc.* 289,800 $ 9,183,038
CheckFree Corp.* 287,150 14,877,959
Concord Communications, Inc.* 158,700 3,808,800
ePresence, Inc.* 501,700 3,762,750
Hyperion Solutions Corp.* 418,600 13,238,225
Internet Security Systems, Inc.* 104,900 8,496,900
Lightspan, Inc.* 1,248,320 4,427,635
Netegrity, Inc.* 124,800 10,982,400
RSA Security, Inc.* 740,535 43,737,848
SeraNova, Inc.* 87,612 750,178
Tier Technologies, Inc.* 765,300 4,974,450
--------------
$ 118,240,183
--------------------------------------------------------------------------------------------------
Computer Software - Systems - 11.9%
Acxiom Corp.* 296,400 $ 7,558,200
Aspen Technology, Inc.* 632,513 29,056,066
AVT Corp.* 686,300 4,074,906
Cambridge Technology Partners, Inc.* 534,100 3,288,053
Computer Network Technology Corp.*# 606,900 12,138,000
CSG Systems International, Inc.* 108,200 4,889,288
Cysive, Inc.* 401,400 3,336,638
Exchange Applications, Inc.* 259,700 6,378,881
JNI Corp.* 71,103 4,772,789
Mercator Software, Inc.* 524,642 8,197,531
MMC Networks, Inc.* 444,900 54,194,381
New Era of Networks, Inc.* 182,760 6,408,023
Packeteer, Inc.* 140,900 6,780,812
Paradyne Networks, Inc.* 131,000 2,808,313
Pinnacle Systems, Inc.*# 486,200 6,138,275
RAVISENT Technologies, Inc.* 677,320 2,963,275
StorageNetworks, Inc.* 2,480 251,720
Synopsys, Inc.* 316,100 11,715,456
Transaction System Architects, Inc., "A"* 614,376 11,289,159
Wind River Systems, Inc.* 188,599 7,685,409
--------------
$ 193,925,175
--------------------------------------------------------------------------------------------------
Conglomerates - 0.4%
Sodexho Marriott Services, Inc. 383,500 $ 6,231,875
--------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.3%
Sportsline USA, Inc.* 312,625 $ 5,529,555
--------------------------------------------------------------------------------------------------
Containers - 0.6%
Ivex Packaging Corp.* 929,400 $ 10,223,400
--------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
Capstone Turbine Corp.* 12,180 $ 1,124,366
--------------------------------------------------------------------------------------------------
Electronics - 7.3%
Brooks Automation, Inc.* 136,800 $ 7,566,750
Cable Design Technologies Corp.* 314,343 8,487,261
Credence Systems Corp.* 133,900 7,841,519
DuPont Photomasks, Inc.*# 299,800 22,747,325
GaSonics International Corp.*# 235,200 5,644,800
Integrated Device Technology, Inc.* 205,635 18,044,471
Marvell Technology Group Ltd.* 10,000 713,750
MKS Instruments, Inc.* 115,400 4,053,425
Photronics, Inc.* 422,555 12,386,143
Sawtek, Inc.* 58,800 2,965,725
SIPEX Corp.* 196,073 8,443,394
Varian Semiconductor Equipment Associates, Inc.* 171,700 9,808,362
Veeco Instruments, Inc.* 114,800 10,288,950
--------------
$ 118,991,875
--------------------------------------------------------------------------------------------------
Energy - 0.8%
Devon Energy Corp. 213,144 $ 12,482,246
--------------------------------------------------------------------------------------------------
Entertainment - 0.5%
Emmis Broadcasting Corp., "A"* 116,300 $ 3,816,094
Spanish Broadcasting Systems, Inc.* 396,325 3,988,020
--------------
$ 7,804,114
--------------------------------------------------------------------------------------------------
Financial Institutions - 0.5%
Federated Investors, Inc., "A" 248,000 $ 5,812,500
Financial Federal Corp.* 111,400 2,367,250
--------------
$ 8,179,750
--------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.2%
Del Monte Foods Co.* 482,900 $ 3,169,031
--------------------------------------------------------------------------------------------------
Gaming and Hotels
Station Casinos, Inc.* 18,241 $ 262,214
--------------------------------------------------------------------------------------------------
Healthcare - 4.8%
Caremark Rx, Inc.* 6,908,190 $ 67,786,614
First Health Group Corp.* 309,200 9,604,525
--------------
$ 77,391,139
--------------------------------------------------------------------------------------------------
Insurance - 0.2%
Inspire Insurance Solutions, Inc.* 1,113,500 $ 2,783,750
--------------------------------------------------------------------------------------------------
Internet - 2.7%
Digital Insight Corp.* 160,350 $ 4,249,275
Jupiter Communications, Inc.* 190,225 4,529,733
L90, Inc.* 152,870 1,175,188
Lante Corp.* 70,270 658,781
Netopia, Inc.* 42,000 1,538,250
Onesource Information Services, Inc.* 331,900 3,941,313
Ticketmaster Online-Citysearch, Inc.* 147,600 3,551,625
VeriSign, Inc.* 102,775 20,439,378
Versata, Inc.* 132,770 3,310,952
--------------
$ 43,394,495
--------------------------------------------------------------------------------------------------
Machinery - 0.4%
Asyst Technologies, Inc.* 271,100 $ 7,099,431
--------------------------------------------------------------------------------------------------
Media - 0.1%
Entravision Communications Corp.* 85,150 $ 1,687,034
--------------------------------------------------------------------------------------------------
Medical and Health Products - 1.7%
Closure Med Corp.* 177,700 $ 3,806,667
CONMED Corp.* 335,200 4,525,200
Haemonetics Corp.* 398,318 10,032,635
I-STAT Corp.* 220,500 4,093,031
ORATEC Interventions, Inc.* 141,410 5,028,893
--------------
$ 27,486,426
--------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 8.8%
Allos Therapeutics, Inc.* 180,830 $ 2,124,753
Arthrocare Corp.* 259,400 11,543,300
Cyberonics, Inc.* 427,500 7,027,031
Cytyc Corp.* 345,792 16,122,552
Express Scripts, Inc.* 44,300 3,153,606
IDEXX Laboratories, Inc.* 639,511 16,707,225
IDX Systems Corp.* 209,637 3,563,829
Illumina, Inc.* 163,528 7,317,878
IMPATH, Inc.* 390,800 14,044,375
LifePoint Hospitals, Inc.* 306,500 9,233,312
Lincare Holdings, Inc.* 279,400 7,124,700
Martek Biosciences Corp.*## 110,752 2,491,920
Omnicare, Inc. 664,900 9,100,819
Orthodontic Centers of America, Inc.* 282,075 9,237,956
Osteotech, Inc.* 528,200 6,272,375
Parexel International Corp.* 558,600 5,568,544
Total Renal Care Holdings, Inc.* 1,058,437 7,409,059
V. I. Technologies, Inc.* 407,321 2,851,247
VISX, Inc.* 99,400 2,739,713
--------------
$ 143,634,194
--------------------------------------------------------------------------------------------------
Oil Services - 6.3%
Cooper Cameron Corp.* 106,100 $ 8,255,906
Dril-Quip, Inc.* 95,845 4,354,957
Global Industries, Inc.* 1,651,575 20,541,464
Input/Output, Inc.* 678,197 6,103,773
Key Energy Services, Inc.* 461,600 4,789,100
National Oilwell, Inc.* 214,685 7,446,886
Noble Drilling Corp.* 545,400 26,451,900
Trico Marine Services, Inc.* 1,162,863 16,861,514
Weatherford International, Inc.* 161,200 7,566,325
--------------
$ 102,371,825
--------------------------------------------------------------------------------------------------
Oils - 3.8%
EOG Resources, Inc. 249,300 $ 9,535,725
Grant Pride Co., Inc.* 160,700 3,776,450
Houston Exploration Co.* 351,220 9,087,818
Louis Dreyfus Natural Gas Corp.* 160,200 5,566,950
Marine Drilling Companies, Inc.* 462,600 12,576,937
Newfield Exploration Co.* 291,700 12,616,025
Oceaneering International, Inc.* 537,200 9,367,425
--------------
$ 62,527,330
--------------------------------------------------------------------------------------------------
Printing and Publishing - 1.0%
Information Holdings, Inc.* 50,000 $ 1,606,250
Scholastic Corp.* 234,596 15,058,131
--------------
$ 16,664,381
--------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.9%
Papa John's International, Inc.* 349,087 $ 7,898,094
Sonic Corp.* 215,186 7,020,443
--------------
$ 14,918,537
--------------------------------------------------------------------------------------------------
Retail - 0.3%
PETCO Animal Supplies, Inc.* 254,749 $ 5,349,729
--------------------------------------------------------------------------------------------------
Special Products and Services - 0.9%
Harmonic Lightwaves, Inc.* 153,600 $ 5,145,600
Sylvan Learning Systems, Inc.* 614,000 8,864,625
--------------
$ 14,010,225
--------------------------------------------------------------------------------------------------
Technology - 1.2%
Galileo Technology Ltd.* 255,200 $ 7,512,450
Varian, Inc.* 231,500 11,285,625
--------------
$ 18,798,075
--------------------------------------------------------------------------------------------------
Telecommunications - 10.5%
Advanced Fibre Communications, Inc.* 205,800 $ 10,878,459
Amdocs Ltd.* 128,100 9,151,144
ANTEC Corp.* 225,100 8,117,669
Aware, Inc.* 163,400 7,322,363
Cabletron Systems, Inc.* 481,300 18,018,669
California Amplifier, Inc.* 137,900 5,757,325
Carrier Access Corp.* 99,100 4,744,413
Corvis Corp.* 49,417 5,130,102
Emulex Corp.* 212,300 22,225,156
Intergrated Telecom Express, Inc.* 7,920 248,985
Intermedia Communications, Inc.* 1,166,738 24,209,813
MGC Communications, Inc.* 290,700 5,396,119
Mpower Communications Corp.* 5,300 227,881
Natural Microsystems Corp.* 207,800 15,494,088
Peco II, Inc.* 3,780 147,420
Pinnacle Holdings, Inc.* 370,200 14,900,550
Proxim, Inc.*# 140,900 8,462,806
Tekelec Co.* 196,600 7,765,700
Telaxis Communications Corp.* 192,730 2,915,041
--------------
$ 171,113,703
--------------------------------------------------------------------------------------------------
Total U.S. Stocks $1,494,294,854
--------------------------------------------------------------------------------------------------
Foreign Stocks - 2.7%
Brazil - 0.1%
Empresa Brasileira de Aeronautica S.A., ADR
(Aerospace and Defense)* 62,490 $ 1,706,758
--------------------------------------------------------------------------------------------------
Canada - 0.4%
Intertape Polymer Group, Inc. (Containers) 371,200 $ 5,962,400
--------------------------------------------------------------------------------------------------
Ireland - 1.7%
SmartForce PLC (Internet)* 530,141 $ 27,567,332
--------------------------------------------------------------------------------------------------
Israel - 0.5%
Fundtech Ltd. (Computer Software - Systems)*# 371,800 $ 8,946,438
--------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 44,182,928
--------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,312,961,883) $1,538,477,782
--------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 0.3%
--------------------------------------------------------------------------------------------------
U.S. Stocks - 0.3%
Business Services - 0.3%
Sitara Networks Inc.## (Identified Cost,
$4,841,585) 743,715 $ 4,841,585
--------------------------------------------------------------------------------------------------
Warrants
--------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------------------------
U.S. Stocks
Martek Biosciences Corp. (Medical and Health
Technology and Services)* 33,226 $ 747,585
--------------------------------------------------------------------------------------------------
Short-Term Obligations - 5.0%
--------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
--------------------------------------------------------------------------------------------------
General Electric Capital Corp., due 9/01/00 $ 50,000 $ 50,000,000
Federal Home Loan Mortgage Discount Notes, due
9/01/00 27,100 27,100,000
Federal National Mortgage Association Discount
Notes, due 9/25/00 4,000 3,982,853
--------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 81,082,853
--------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,398,886,321) $1,625,149,805
--------------------------------------------------------------------------------------------------
Securities Sold Short (Equity) - (0.2)%
--------------------------------------------------------------------------------------------------
SHARES
--------------------------------------------------------------------------------------------------
Internet - (0.2)%
Retek, Inc.* (Proceeds Received, $6,714,473) (96,460) $ (3,321,841)
--------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.3% 4,321,080
--------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,626,149,044
--------------------------------------------------------------------------------------------------
* Non-income producing security.
# Security or a portion of the security was pledged to cover margin requirements for securities sold
short. At the period end, the value of securities pledged amounted to $4,549,731.
## SEC Rule 144A restriction.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
---------------------------------------------------------------------------------------
AUGUST 31, 2000
---------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $1,398,886,321) $1,625,149,805
Investments of cash collateral for securities loaned, at value
(identified cost, $247,307,232) 247,307,232
Cash 99,183
Receivable for fund shares sold 6,026,854
Receivable for investments sold 31,269,398
Dividends and interest receivable 87,303
Receivable from investment adviser 367,326
Other assets 274
--------------
Total assets $1,910,307,375
--------------
Liabilities:
Securities sold short, at value (proceeds received, $6,714,473) $ 3,321,841
Payable for investments purchased 31,012,680
Payable for fund shares reacquired 2,276,803
Collateral for securities loaned, at value 247,307,232
Payable to affiliates -
Management fee 39,524
Distribution and service fee 27,124
Accrued expenses and other liabilities 173,127
--------------
Total liabilities $ 284,158,331
--------------
Net assets $1,626,149,044
==============
Net assets consist of:
Paid-in capital $1,166,443,355
Unrealized appreciation on investments and translation of assets
and liabilities in foreign currencies 229,656,116
Accumulated undistributed net realized gain on investments and
foreign currency transactions 230,049,573
--------------
Total $1,626,149,044
==============
Shares of beneficial interest outstanding 65,338,134
==========
Class A shares:
Net asset value per share
(net assets of $904,142,344 / 36,158,466 shares of beneficial
interest outstanding) $25.00
======
Offering price per share (100 / 94.25 of net asset value per share) $26.53
======
Class B shares:
Net asset value and offering price per share
(net assets of $483,805,139 / 19,578,348 shares of beneficial
interest outstanding) $24.71
======
Class C shares:
Net asset value and offering price per share
(net assets of $202,890,757 / 8,203,230 shares of beneficial
interest outstanding) $24.73
======
Class I shares:
Net asset value, offering price, and redemption price per
share (net assets of $35,310,804 / 1,398,090 shares of
beneficial interest outstanding) $25.26
======
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.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
--------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2000
--------------------------------------------------------------------------
Net investment income (loss):
Income -
Interest $ 2,830,391
Income on securities loaned 515,506
Dividends 317,833
Foreign taxes withheld (7,071)
------------
Total investment income $ 3,656,659
------------
Expenses -
Management fee $ 9,618,746
Trustees' compensation 37,634
Shareholder servicing agent fee 1,068,704
Distribution and service fee (Class A) 1,942,438
Distribution and service fee (Class B) 3,478,579
Distribution and service fee (Class C) 1,469,740
Administrative fee 159,892
Custodian fee 290,430
Printing 99,714
Postage 153,999
Auditing fees 31,242
Legal fees 5,829
Miscellaneous 894,187
------------
Total expenses $19,251,134
Fees paid indirectly (135,833)
Reimbursement of expenses to investment adviser 291,805
------------
Net expenses $ 19,407,106
------------
Net investment loss $(15,750,447)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $260,759,488
Securities sold short (2,021,831)
Foreign currency transactions 64
------------
Net realized gain on investments and foreign
currency transactions $258,737,721
------------
Change in unrealized appreciation -
Investments $188,486,801
Securities sold short 3,392,632
------------
Net unrealized gain on investments $191,879,433
------------
Net realized and unrealized gain on investments
and foreign currency $450,617,154
------------
Increase in net assets from operations $434,866,707
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
--------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (15,750,447) $ (5,119,383)
Net realized gain on investments and foreign currency
transactions 258,737,721 15,706,643
Net unrealized gain on investments and foreign currency
translation 191,879,433 79,461,676
-------------- ------------
Increase in net assets from operations $ 434,866,707 $ 90,048,936
-------------- ------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions (Class A) $ (11,060,797) $ (1,158,786)
From net realized gain on investments and foreign
currency transactions (Class B) (6,873,757) (1,050,387)
From net realized gain on investments and foreign
currency transactions (Class C) (2,912,203) (311,497)
From net realized gain on investments and foreign
currency transactions (Class I) (462,408) (59,727)
-------------- ------------
Total distributions declared to shareholders $ (21,309,165) $ (2,580,397)
-------------- ------------
Net increase in net assets from fund share transactions $ 704,927,319 $246,652,515
-------------- ------------
Total increase in net assets $1,118,484,861 $334,121,054
Net assets:
At beginning of period 507,664,183 173,543,129
-------------- ------------
At end of period (including accumulated net investment
income of $0 and $0, respectively) $1,626,149,044 $507,664,183
============== ============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
-----------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
------------------------------------------- AUGUST 31,
2000 1999 1998 1997*
-----------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $ 14.59 $ 10.65 $ 13.07 $ 10.00
----------- ----------- ----------- -----------
Income (loss) from investment operations# -
Net investment income (loss)(S) $ (0.26) $ (0.16) $ (0.11) $ 0.98
Net realized and unrealized gain (loss) on
investments and foreign currency 11.28 4.24 (0.36) 2.09
----------- ----------- ----------- -----------
Total from investment operations $ 11.02 $ 4.08 $ (0.47) $ 3.07
----------- ----------- ----------- -----------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ (0.72) $ --
From net realized gain on investments and foreign
currency transactions (0.61) (0.14) (1.23) --
----------- ----------- ----------- -----------
Total distributions declared to shareholders $ (0.61) $ (0.14) $ (1.95) $ --
----------- ----------- ----------- -----------
Net asset value - end of period $ 25.00 $ 14.59 $ 10.65 $ 13.07
=========== =========== =========== ===========
Total return(+) 76.63% 38.44% (4.88)% 30.70%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.53% 1.51% 1.53% 1.54%+
Net investment income (loss) (1.17)% (1.13)% (0.82)% 12.41%+
Portfolio turnover 103% 104% 196% 887%
Net assets at end of period (000 Omitted) $ 904,142 $ 248,710 $ 63,740 $ 536
(S) 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 0.25% of average daily net
assets, effective November 1, 1997, through December 31, 1999, and 0.30% through August 31, 2000. Prior to
November 1, 1997, subject to reimbursement by the fund, the investment adviser agreed to maintain the
expenses of the fund at not more than 1.50% of the fund's average daily net assets, and the investment
adviser, distributor and shareholder servicing agent did not impose any of their fees. To the extent
actual expenses were over/under these limitations and the waivers had not been in place for the periods
indicated, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $ (0.26) $ (0.17) $ (0.12) $ 0.89
Ratios (to average net assets):
Expenses## 1.51% 1.57% 1.63% 3.10%+
Net investment income (loss) (1.15)% (1.19)% (0.92)% 10.81%+
* For the period from the commencement of the fund's investment operations, 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.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
---------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
---------------------------------- AUGUST 31,
2000 1999 1998*
---------------------------------------------------------------------------------------------------------------
CLASS B
---------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $14.46 $10.60 $11.80
------ ------ ------
Income (loss) from investment operations# -
Net investment loss(S) $(0.39) $(0.24) $(0.17)
Net realized and unrealized gain (loss) on
investments and foreign currency 11.17 4.21 (1.03)
------ ------ ------
Total from investment operations $10.78 $ 3.97 $(1.20)
------ ------ ------
Less distributions declared to shareholders from
net realized gain on investments and foreign
currency transactions $(0.53) $(0.11) $ --
------ ------ ------
Net asset value - end of period $24.71 $14.46 $10.60
====== ====== ======
Total return 75.50% 37.56% (10.17)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.18% 2.16% 2.18%+
Net investment loss (1.81)% (1.76)% (1.49)%+
Portfolio turnover 103% 104% 196%
Net assets at end of period (000 Omitted) $483,805 $174,488 $82,032
(S) 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 0.30% of average daily net
assets from January 1, 2000, through August 31, 2000. Prior to January 1, 2000, the investment adviser
agreed to maintain the expenses of the fund, exclusive of management and distribution and service fees, at
not more than 0.25% average daily net assets. To the extent actual expenses were over/under these
limitations, the net investment loss per share and the ratios would have been:
Net investment loss $(0.39) $(0.25) $(0.18)
Ratios (to average net assets):
Expenses## 2.16% 2.22% 2.28%+
Net investment loss (1.79)% (1.82)% (1.59)%+
* For the period from the inception of Class B shares, November 3, 1997, through August 31, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
---------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
---------------------------------- AUGUST 31,
2000 1999 1998*
---------------------------------------------------------------------------------------------------------------
CLASS C
---------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $14.47 $10.61 $11.80
------ ------ ------
Income (loss) from investment operations# -
Net investment loss(S) $(0.39) $(0.24) $(0.17)
Net realized and unrealized gain (loss) on
investments and foreign currency 11.18 4.21 (1.02)
------ ------ ------
Total from investment operations $10.79 $ 3.97 $(1.19)
------ ------ ------
Less distributions declared to shareholders from
net realized gain on investments and foreign
currency transactions $(0.53) $(0.11) $ --
------ ------ ------
Net asset value - end of period $24.73 $14.47 $10.61
====== ====== ======
Total return 75.57% 37.53% (10.08)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.18% 2.16% 2.18%+
Net investment loss (1.79)% (1.78)% (1.51)%+
Portfolio turnover 103% 104% 196%
Net assets at end of period (000 Omitted) $202,891 $74,493 $24,450
(S) 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 0.30% of average daily net
assets from January 1, 2000, through August 31, 2000. Prior to January 1, 2000, the investment adviser
agreed to maintain the expenses of the fund, exclusive of management and distribution and service fees, at
not more than 0.25% average daily net assets. To the extent actual expenses were over/under these
limitations, the net investment loss per share and the ratios would have been:
Net investment loss $(0.39) $(0.25) $(0.17)
Ratios (to average net assets):
Expenses## 2.16% 2.22% 2.28%+
Net investment loss (1.77)% (1.84)% (1.61)%+
* For the period from the inception of Class C shares, November 3, 1997, through August 31, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
-------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
----------------------------- AUGUST 31,
2000 1999 1998 1997*
-------------------------------------------------------------------------------------------------
CLASS I
-------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $ 14.71 $10.70 $13.08 $10.00
------- ------ ------ ------
Income (loss) from investment operations# -
Net investment income (loss)(S) $ (0.18) $(0.11) $(0.03) $ 1.01
Net realized and unrealized gain (loss) on
investments and foreign currency 11.37 4.27 (0.40) 2.07
------- ------ ------ ------
Total from investment operations $ 11.19 $ 4.16 $(0.43) $ 3.08
------- ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $(0.72) $ --
From net realized gain on investments
and foreign currency transactions (0.64) (0.15) (1.23) --
------- ------ ------ ------
Total distributions declared to shareholders $ (0.64) $(0.15) $(1.95) $ --
------- ------ ------ ------
Net asset value - end of period $ 25.26 $14.71 $10.70 $13.08
======= ====== ====== ======
Total return 77.22% 39.06% (4.50)% 30.80%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.18% 1.16% 1.18% 1.54%+
Net investment income (loss) (0.83)% (0.77)% (0.21)% 12.65%+
Portfolio turnover 103% 104% 196% 887%
Net assets at end of period (000 Omitted) $35,311 $9,973 $3,321 $1,494
(S) 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 0.25% of average daily net
assets, effective November 1, 1997, through December 31, 1999, and 0.30% through August 31, 2000. Prior to
November 1, 1997, subject to reimbursement by the fund, the investment adviser agreed to maintain the
expenses of the fund at not more than 1.50% of the fund's average daily net assets, and the investment
adviser, distributor and shareholder servicing agent did not impose any of their fees. To the extent
actual expenses were over/under these limitations and the waivers had not been in place for the periods
indicated, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.18) $(0.12) $(0.03) $ 0.92
Ratios (to average net assets):
Expenses## 1.16 1.22% 1.28% 2.52%+
Net investment income (loss) (0.81)% (0.83)% (0.31)% 11.63%+
* For the period from the commencement of the fund's investment operations, 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.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS New Discovery 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.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Securities for which there are
no such quotations or valuations are valued in good faith, 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.
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 provide 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. 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 $234,454,750. These loans
were collateralized by cash of $247,307,232 which was invested in the following
short-term obligations:
AMORTIZED COST
SHARES AND VALUE
------------------------------------------------------------------------------
Navigator Securities lending Prime Portfolio 247,307,232 $247,307,232
Short Sales - The fund may enter into short sales. A short sale transaction
involves selling a security which the fund does not own with the intent of
purchasing it later at a lower price. The fund will realize a gain if the
security price decreases and a loss if the security price increases between the
date of the short sale and the date on which the fund must replace the borrowed
security. Losses can exceed the proceeds from short sales and can be greater
than losses from the actual purchase of a security. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of the
premium, dividends, or interest the fund may be required to pay in connection
with a short sale. Whenever the fund engages in short sales, its custodian
segregates cash or marketable securities in an amount that, when combined with
the amount of proceeds from the short sale deposited with the broker, at least
equals the current market value of the security sold short.
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, $15,750,325 and $122 were reclassified to
accumulated undistributed net investment income from accumulated undistributed
net realized gain on investments and foreign currency transactions and paid-in
capital, respectively, due to differences between book and tax accounting for
foreign currency transactions and net investment loss. 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 an annual rate of 0.90% of
the fund's average daily net assets.
The fund has a temporary expense reimbursement agreement whereby MFS has
voluntarily agreed to pay all of the fund's operating expenses, exclusive of
management, distribution, and service fees. The fund in turn will pay MFS an
expense reimbursement fee not greater than 0.30% of average daily net assets.
Prior to January 1, 2000, the expense reimbursement fee was 0.25% of average
daily net assets. To the extent that the expense reimbursement fee exceeds the
funds actual expenses, the excess will be applied to amounts paid by MFS in
prior years. As of August 31, 2000, the fund fully reimbursed all of the
expenses paid by MFS.
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. The Trustees are currently not receiving
any payments for their services to the fund.
Administrator - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund 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
$441,077 for the year 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 $26,066 for the year ended August 31, 2000.
Fees incurred under the distribution plan during the year ended August 31, 2000,
were 0.35% of average daily net assets attributable to Class A shares on an
annualized basis.
The fund's distribution plan provides that the fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be consideration for services
rendered by the dealer with respect to Class B and Class C shares. MFD retains
the service fee for accounts not attributable to a securities dealer, which
amounted to $930 and $854 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 $14,389, $317,533, and $35,565 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 U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,629,173,378 and $1,041,020,089, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are as
follows:
Aggregate cost $1,406,816,533
--------------
Gross unrealized appreciation $ 410,741,418
Gross unrealized depreciation (192,408,146)
--------------
Net unrealized appreciation $ 218,333,272
==============
(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 32,798,043 $ 743,089,648 21,929,599 $ 298,839,798
Shares issued to shareholders
in reinvestment of distributions 426,165 8,379,523 83,708 1,083,406
Shares reacquired (14,110,222) (307,360,405) (10,951,616) (153,369,534)
------------- ------------- ------------- -------------
Net increase 19,113,986 $ 444,108,766 11,061,691 $ 146,553,670
============= ============= ============= =============
<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 10,612,520 $ 240,760,930 7,912,588 $ 104,420,557
Shares issued to shareholders
in reinvestment of distributions 312,443 6,102,584 72,888 939,522
Shares reacquired (3,414,926) (73,305,260) (3,659,525) (48,606,010)
------------- ------------- ------------- -------------
Net increase 7,510,037 $ 173,558,254 4,325,951 $ 56,754,069
============= ============= ============= =============
<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 4,888,796 $ 109,771,237 4,058,416 $ 54,988,585
Shares issued to shareholders
in reinvestment of distributions 115,607 2,258,991 17,675 228,190
Shares reacquired (1,948,365) (41,940,325) (1,234,357) (16,797,230)
------------- ------------- ------------- -------------
Net increase 3,056,038 $ 70,089,903 2,841,734 $ 38,419,545
============= ============= ============= =============
<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 1,713,592 $ 40,387,746 475,891 $ 6,403,650
Shares issued to shareholders
in reinvestment of distributions 23,330 462,405 4,587 59,727
Shares reacquired (1,016,838) (23,679,755) (112,721) (1,538,146)
------------- ------------- ------------- -------------
Net increase 720,084 $ 17,170,396 367,757 $ 4,925,231
============= ============= ============= =============
</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. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the fund for the year ended August 31,
2000, was $10,459. The fund had no significant borrowings during the year.
<PAGE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Trustees of the MFS Series Trust I and the Shareholders of MFS New
Discovery Fund:
We have audited the accompanying statement of assets and liabilities of MFS New
Discovery 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 three years in
the period then ended, and for the period from January 2, 1997 (commencement of
operations) to August 31, 1997. 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
New Discovery 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 three years in
the period then ended, and for the period from January 2, 1997 (commencement of
operations) to August 31, 1997, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
October 9, 1999
<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 $25,487 AS A CAPITAL GAIN DIVIDEND FOR THE YEAR ENDED
AUGUST 31, 2000.
FOR THE YEAR ENDED AUGUST 31, 2000, THE AMOUNT OF DISTRIBUTIONS FROM INCOME
ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS CAME TO
0.79%.
<PAGE>
MFS(R) NEW DISCOVERY FUND
<TABLE>
<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
MFS Investment Management your investment professional or, for an
information kit, call toll free: 1-800-637-2929
Jeffrey L. Shames* - Chairman and Chief any business day from 9 a.m. to 5 p.m.
Executive Officer, MFS Investment Eastern time (or leave a message anytime).
Management
INVESTOR SERVICE
J. Dale Sherratt+ - President, Insight Resources, MFS Service Center, Inc.
Inc. (acquisition planning 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
CHAIRMAN AND PRESIDENT outlooks, call toll free:
Jeffrey L. Shames* 1-800-MFS-TALK (1-800-637-8255)
anytime from a touch-tone
PORTFOLIO MANAGER telephone.
Brian E. Stack*
WORLD WIDE WEB
TREASURER www.mfs.com
James O. Yost*
</TABLE>
+ Independent Trustee
* MFS Investment Management
<PAGE>
------------
MFS(R) NEW DISCOVERY 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.
MND-2 10/00 162M 97/297/397/897
