UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4777
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MFS SERIES TRUST I
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Stephen E. Cavan
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: August 31, 2003
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Date of reporting period: August 31, 2003
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/03
MFS(R) JAPAN EQUITY FUND
[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) JAPAN EQUITY FUND
The fund seeks capital appreciation.
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MFS(R) PRIVACY POLICY
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share
information with companies or financial institutions that perform marketing
services on our behalf or to other financial institutions with which we have
joint marketing arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
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TABLE OF CONTENTS
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MFS PRIVACY POLICY
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MANAGEMENT REVIEW 1
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PERFORMANCE SUMMARY 2
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PORTFOLIO OF INVESTMENTS 4
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FINANCIAL STATEMENTS 7
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NOTES TO FINANCIAL STATEMENTS 12
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INDEPENDENT AUDITORS' REPORT 16
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FEDERAL TAX INFORMATION 17
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TRUSTEES AND OFFICERS 18
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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MANAGEMENT REVIEW
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Dear Shareholders,
Under normal market conditions, the fund seeks to provide capital appreciation
by investing primarily in common stocks and related securities of companies
whose principal activities are located in Japan, with a focus on companies
with above-average growth potential. The fund may invest in securities of
companies of any size. The fund is nondiversified, which means that it may
invest a relatively high percentage of its assets in a small number of
holdings.
In selecting securities for the portfolio, we use a bottom-up approach to look
for companies that possess strong management teams with clearly defined
strategies, strong franchises with substantial barriers to new entrants,
strong cash flows, recurring revenue streams, potential for high profit
margins, and a catalyst that may accelerate growth.
CONTRIBUTORS TO PERFORMANCE
Over the twelve-month period ending August 31, 2003, the fund's strongest-
performing sectors included autos & housing, technology, and retailing. Within
the autos & housing sector, stocks that helped performance included the fund's
two top-performing holdings, Stanley Electric and Nissan Motor. In the
technology sector, positions that contributed to results included Brother
Industries, Canon, and Citizen Electronics. By the end of the period, we had
sold our Nissan Motor and Canon holdings and taken some profits. The largest
contributor in the retailing sector was our position in Fast Retailing;
relative performance in the sector was also aided by our avoidance of Seven-
Eleven Japan and Ito-Yokado, which plunged in value during the period.
DETRACTORS FROM PERFORMANCE
Leisure and energy were the fund's weakest-performing areas over the reporting
period. Sega was the portfolio's chief detractor in the leisure sector, and we
sold the position during the period. The fund's position in Nippon Oil was the
key factor in its underperformance in the energy sector. Other holdings that
held back relative performance included Credit Saison and Sompo Japan Insurance
in the financial services sector, Shiseido in the consumer staples sector, and
NTT DoCoMo in the utilities and communications sector. By period- end, Sompo
Japan, Shiseido, and NTT DoCoMo had been sold out of the portfolio.
Respectfully,
/s/ David A. Antonelli
David A. Antonelli
Director of Global Equity Research
The opinions expressed in this report are those of the Director of Global
Equity Research and are current only through the end of the period of the
report as stated on the cover. These views are subject to change at any time
based on market and other conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
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PERFORMANCE SUMMARY THROUGH 8/31/03
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Currently, the fund offers only Class A and/or Class I shares, which are
available for purchase at net asset value only by residents of the
Commonwealth of Massachusetts who are employees (or certain relatives of
employees) of MFS and its affiliates or members of the governing boards of the
various funds sponsored by MFS.
The following information illustrates the historical performance of the fund's
Class A shares in comparison to their benchmarks. Performance results reflect
the maximum applicable sales charge and the percentage change in net asset
value, including the reinvestment of any dividends and capital gains
distributions. Benchmark comparisons are unmanaged and do not reflect any fees
or expenses. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
For the period from the commencement of the fund's investment operations, June
1, 2000, through August 31, 2003. Index information is from June 1, 2000.
MFS Japan
Equity Fund - Tokyo Price
Class A Index
6/00 $9,425 $10,612
8/00 9,123 10,030
8/01 6,334 6,628
8/02 6,381 5,708
8/03 7,446 6,251
TOTAL RETURNS
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Average annual
without sales charge
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Class
Share class inception date 1-yr 3-yr Life*
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A 6/01/2000 +16.69% - 6.55% - 7.00%
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I 7/31/2002 +16.69% - 6.55% - 7.00%
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Average annual
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Comparative Benchmarks
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Average Japanese fund+ + 5.89% -18.60% -17.34%
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Tokyo Price Index# + 9.52% -14.58% -13.46%
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Average annual
with sales charge
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A + 9.98% - 8.38% - 8.68%
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I class shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
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Cumulative without
sales charge
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Share class 1-yr 3-yr Life*
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A +16.69% -18.39% -21.00%
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I +16.69% -18.39% -21.00%
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* For the period from the commencement of the fund's investment operations,
June 1, 2000, through August 31, 2003. Index information is from June 1,
2000.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Bloomberg.
INDEX DEFINITION
TOKYO PRICE INDEX (TOPIX) - A measure of the broad Japanese stock market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflect the deduction of the maximum
5.75% sales charge.
Class I shares have no sales charges and are available only to certain
investors.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
Performance results reflect any applicable subsidies and waivers in effect
during the periods shown; without these, the results would have been less
favorable. See the prospectus and financial statements for details. All
results are historical and include the reinvestment of dividends and capital
gains distributions.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN ABOVE DOES NOT
REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
Because the portfolio invests in a limited number of companies a change in one
security's value may have a more significant effect on the portfolio's value.
The portfolio may participate in the initial public offering (IPO) market, and
a significant portion of the portfolio's returns may be attributable to
investment in IPOs, which may have greater impact on performance of a
portfolio while its asset base is small. There is no guarantee the portfolio
will experience similar performance as its assets grow.
The portfolio may invest a substantial amount of its assets in issuers located
in a limited number of countries and therefore is susceptible to adverse
economic, political or regulatory developments affecting those countries.
These risks may increase share price volatility. Please see the prospectus for
more information regarding these and other risk considerations.
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.
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PORTFOLIO OF INVESTMENTS - 8/31/03
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The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 95.6%
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ISSUER SHARES $ VALUE
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Japan - 95.6%
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Automotive - 8.5%
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Bridgestone Corp. 5,000 $69,632
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DENSO Corp. 1,700 31,761
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Honda Motor Co., Ltd. 4,600 187,256
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Musashi Seimitsu Industry Co., Ltd. 2,200 49,964
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Nissin Co., Ltd. 900 20,478
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$359,091
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Banks & Credit Companies - 4.3%
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Aeon Credit Service Co., Ltd. 2,200 $78,245
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Credit Saison Co., Ltd. 6,000 103,869
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$182,114
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Broadcast & Cable TV - 2.6%
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Tokyo Broadcasting System, Inc. 7,000 $107,383
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Business Services - 0.2%
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Pasona, Inc. 2 $6,719
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Computer Software - Systems - 1.1%
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NEC Fielding, Ltd. 800 $47,101
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Consumer Goods & Services - 2.9%
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Uni-Charm Corp. 2,600 $120,324
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Electrical Equipment - 4.0%
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Fujikura, Ltd. 37,000 $166,791
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Electronics - 22.1%
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ALPS Electric Co., Ltd. 8,000 $136,024
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Brother Industries, Ltd. 24,000 212,881
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Citizen Electronics Co., Ltd. 2,000 132,665
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Funai Electric Co., Ltd. 400 48,507
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Ibiden Co., Ltd. 5,500 89,133
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Nippon Electric Glass Co., Ltd. 9,000 99,884
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Stanley Electric Co., Ltd. 12,000 211,853
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$930,947
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Energy - Independent -- 1.4%
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Nippon Oil Corp. 15,000 $59,262
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Entertainment - 2.8%
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Round One Corp. 35 $117,582
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Food & Non Alcoholic Beverages - 0.8%
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Asahi Soft Drinks Co., Ltd. 8,000 $33,389
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Insurance - 3.5%
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Mitsui Sumitomo Insurance Co., Ltd. 25,000 $149,334
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Leisure & Toys - 4.1%
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Heiwa Corp. 1,400 $20,517
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Konica Minolta Holdings, Inc. 4,000 54,814
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Yamaha Corp. 6,000 98,830
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$174,161
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Machinery & Tools - 4.0%
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Glory, Ltd. 1,700 $43,489
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Mitsui Mining & Smelting Co., Ltd. 37,000 124,300
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$167,789
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Metals & Mining - 3.5%
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JFE Holdings, Inc. 7,300 $147,020
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Natural Gas - Distribution - 4.0%
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Tokyo Gas Co., Ltd. 56,000 $170,373
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Pharmaceuticals - 4.9%
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Chugai Pharmaceutical Co., Ltd. 9,000 $95,334
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Shionogi & Co., Ltd. 2,000 29,412
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Takeda Chemical Industries, Ltd. 2,200 79,565
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$204,311
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Railroad & Shipping - 1.7%
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East Japan Railway Co., Ltd. 17 $71,826
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Real Estate - 2.0%
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Meiwa Estate Co., Ltd. 5,500 $42,186
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Sumitomo Real Estate Sales Co., Ltd. 1,600 39,903
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$82,089
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Special Products & Services - 1.7%
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Central Glass Co., Ltd. 11,000 $69,666
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Specialty Chemicals - 2.2%
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Sumitomo Bakelite Co., Ltd. 17,000 $91,931
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Specialty Stores - 5.4%
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Fast Retailing Co., Ltd. 4,500 $187,042
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Nishimatsuya Chain Co., Ltd. 1,900 41,766
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$228,808
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Telephone Services - 7.9%
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Japan Telecom Holdings Co., Ltd. 50 $163,260
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KDDI Corp. 33 168,839
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$332,099
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Total Stocks (Identified Cost, $3,142,514) $4,020,110
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Short-Term Obligations - 2.9%
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PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
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General Electric Capital Corp., due 9/02/03, at Amortized
Cost $124 $123,996
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Total Investments (Identified Cost, $3,266,510) $4,144,106
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Other Assets, Less Liabilities - 1.5% 62,013
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Net Assets - 100.0% $4,206,119
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See notes to financial statements.
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FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
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This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 8/31/03
ASSETS
Investments, at value (identified cost, $3,266,510) $4,144,106
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Cash 83
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Receivable for investments sold 59,647
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Receivable for fund shares sold 25,000
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Interest and dividends receivable 1,199
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Total assets $4,230,035
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LIABILITIES
Payable for investments purchased $23,493
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Payable to affiliates
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Management fee 338
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Reimbursement fee 85
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Total liabilities $23,916
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Net assets $4,206,119
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NET ASSETS CONSIST OF
Paid-in capital $5,167,271
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Unrealized appreciation on investments and translation of assets
and liabilities in foreign currencies 877,630
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Accumulated net realized loss on investments and foreign
currency transactions (1,838,782)
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Accumulated net investment loss --
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Total $ 4,206,119
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Shares of beneficial interest outstanding 532,615
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Class A shares
Net assets $4,062,658
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Shares outstanding 514,465
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Net asset value per share $7.90
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Offering price per share (100/94.25X$7.90) $8.38
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Class I shares
Net assets $143,461
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Shares outstanding 18,150
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Net asset value, offering price, and redemption price per share $7.90
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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 shares.
See notes to financial statements.
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FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
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This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
FOR YEAR ENDED 8/31/03
NET INVESTMENT LOSS
Income
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Dividends $35,795
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Interest 1,110
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Foreign taxes withheld (4,147)
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Total investment income $32,758
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Expenses
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Management fee $34,454
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Shareholder servicing agent fee 3,595
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Distribution and service fee 11,504
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Administrative fee 332
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Custodian fee 12,825
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Printing 5,703
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Postage 68
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Auditing fees 29,256
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Legal fees 492
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Professional services 6,630
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Miscellaneous 4,273
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Total expenses $109,132
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Fees paid indirectly (13)
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Reduction of expenses by investment adviser and distributor (66,051)
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Net expenses $43,068
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Net investment loss $(10,310)
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss (identified cost basis)
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Investment transactions $(15,734)
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Foreign currency transactions (2,040)
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Net realized loss on investments and foreign currency transactions $(17,774)
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Change in unrealized appreciation
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Investments $630,883
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Translation of assets and liabilities in foreign currencies 58
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Net unrealized gain on investments and foreign currency translation $630,941
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Net realized and unrealized gain on investments and foreign currency $613,167
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Increase in net assets from operations $602,857
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See notes to financial statements.
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FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
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This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment loss $(10,310) $(19,917)
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Net realized loss on investments and foreign currency
transactions (17,774) (696,337)
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Net unrealized gain on investments and foreign currency
translation 630,941 737,787
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Increase in net assets from operations $602,857 $21,533
- ------------------------------------------------------------------ --------- ---------
Net increase in net assets from fund share transactions $38,078 $132,355
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Total increase in net assets $640,935 $153,888
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NET ASSETS
At beginning of period $3,565,184 $3,411,296
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At end of period $4,206,119 $3,565,184
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Accumulated net investment loss included in net assets at end of
period $-- $--
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See notes to financial statements.
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FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
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The financial highlights table is intended to help you understand the fund's financial performance for the period of the
fund's operation. Certain information reflects financial results for a single fund share. The total returns in the table
represent the rate by which an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of
all distributions). This information has been audited by the fund's independent auditors, whose report, together with the
fund's financial statements, are included in this report.
FOR YEARS ENDED 8/31
PERIOD ENDED
CLASS A 2003 2002 2001 8/31/2000*
Net asset value, beginning of period $6.77 $6.72 $9.68 $10.00
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INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.02) $(0.04) $(0.05) $(0.02)
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.15 0.09 (2.91) (0.30)
- ---------------------------------------------------- ------ ------ ------ ------
Total from investment operations $1.13 $0.05 $(2.96) $(0.32)
- ---------------------------------------------------- ------ ------ ------ ------
Net asset value, end of period $7.90 $6.77 $6.72 $9.68
- ---------------------------------------------------- ------ ------ ------ ------
Total return (%)(+) 16.69 0.74 (30.58) (3.20)++
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RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses## 1.25 1.25 1.27 1.42+
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Net investment loss (0.30) (0.61) (0.57) (0.77)+
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 111 118 117 21
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Net assets at end of period (000 Omitted) $4,063 $3,435 $3,411 $4,876
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(S) Subject to reimbursement by the fund, the investment adviser voluntarily agreed, under a temporary expense
reimbursement agreement, to pay all of the fund's operating expenses, exclusive of management and distribution and
service fees. In consideration, the fund pays the investment adviser a reimbursement fee not greater than 0.25% of the
average daily net assets. In addition the distributor voluntarily waived its fees for all of the periods shown. To the
extent actual expenses were over this limitation and the waiver had not been in place, the net investment loss per
share and the ratios would have been:
Net investment loss $(0.14) $(0.17) $(0.15) $(0.07)
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RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 3.19 3.22 2.52 3.65+
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Net investment loss (2.24) (2.58) (1.82) (3.00)+
- --------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, June 1, 2000, through August 31, 2000.
+ 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.
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS I 8/31/03 8/31/02**
Net asset value, beginning of period $6.77 $6.75
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.02) $(0.00)+++
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 1.15 0.02
- ------------------------------------------------------------------- ------- -------
Total from investment operations $1.13 $0.02
- ------------------------------------------------------------------- ------- -------
Net asset value, end of period $7.90 $6.77
- ------------------------------------------------------------------- ------- -------
Total return (%) 16.69 0.30++
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RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses## 1.25 1.25++
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Net investment loss (0.24) (1.26)+
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 111 118
- ------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $143 $131
- ------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser voluntarily agreed, under a temporary
expense reimbursement agreement, to pay all of the fund's operating expenses, exclusive of
management fees. In consideration, the fund pays the investment adviser a reimbursement fee not
greater than 0.25% of the average daily net assets. To the extent actual expenses were over this
limitation and the waiver had not been in place, the net investment loss per share and ratios
would have been:
Net investment loss $(0.12) $(0.00)+++
- ------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.84 2.87+
- ------------------------------------------------------------------------------------------------------
Net investment loss (1.83) (2.88)+
- ------------------------------------------------------------------------------------------------------
** For the period from the inception of Class I, July 31, 2002, through August 31, 2002.
+ 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.
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NOTES TO FINANCIAL STATEMENTS
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(1) BUSINESS AND ORGANIZATION
MFS Japan Equity Fund (the fund) is a non-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
accounting principles generally accepted in the United States of America
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 and may invest a substantial amount
of its assets in issuers located in a single country or a limited number of
countries. 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 in the fund's portfolio for which
market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Short-term obligations in the fund's portfolio
are valued at amortized cost, which constitutes fair value as determined by
the Board of Trustees. Short-term obligations with a remaining maturity in
excess of 60 days will be valued upon dealer-supplied valuations. Portfolio
investments for which market quotations are not readily available, or whose
values have been materially affected by events occurring after the close of
their primary markets, are valued at fair value as determined in good faith by
or at the direction of the Board of 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.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend 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. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, derivatives, wash sales and capital
losses.
The fund paid no distributions for the years ended August 31, 2003 and August
31, 2002.
During the year ended August 31, 2003, accumulated net investment loss
decreased by $10,310, accumulated net realized loss on investments and foreign
currency transactions decreased by $2,041, and paid-in capital decreased by
$12,351 due to differences between book and tax accounting for net investment
losses and currency transactions. This change had no effect on the net assets
or net asset value per share. At August 31, 2003, accumulated net investment
loss and realized loss on investments and foreign currency transactions under
book accounting were different from tax accounting due to temporary
differences in accounting for currency, wash sales and capital losses.
As of August 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $--
------------------------------------------------
Undistributed long-term capital gain --
------------------------------------------------
Capital loss carryforward (1,813,920)
------------------------------------------------
Unrealized appreciation 852,768
------------------------------------------------
Other temporary differences --
------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on:
EXPIRATION DATE
August 31, 2008 $(63,475)
------------------------------------------------
August 31, 2009 (125,721)
------------------------------------------------
August 31, 2010 (1,125,533)
------------------------------------------------
August 31, 2011 (499,191)
------------------------------------------------
Total $(1,813,920)
------------------------------------------------
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(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 1.00%
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 0.25% of average daily net assets. To the extent that the expense
reimbursement fee exceeds the fund's actual expenses, the excess will be
applied to amounts paid by MFS in prior years. The reimbursement plan expired
on June 1, 2003. MFS instituted a new plan through January 1, 2004.
At August 31, 2003, aggregate unreimbursed expenses amounted to $13,976.
The fund pays compensation to the Independent Trustees ("Trustees") in the
form of both a retainer and attendance fees, and 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).
On January 1, 2002, the Trustees terminated the Independent Trustee unfunded
defined benefit plan for active Trustees and converted it to an unfunded
retirement benefit deferral plan for active Trustees, which has no impact on
the expense of the funds. Under the new plan, the unfunded pension liability
was converted into an equivalent value of notional shares of the funds that
will fluctuate with the performance of the funds. The Trustees currently are
not receiving any payment for their services for the fund.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
at the following annual percentages of the fund's average daily net assets:
First $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, did not
receive any sales charges on sales of Class A shares of the fund for the year
ended August 31, 2003.
The Trustees have adopted a distribution plan for Class A 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 an annual
percentage of its average daily net assets attributable to certain share
classes 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
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A
Distribution Fee 0.10%
----------------------------------------------
Service Fee 0.25%
----------------------------------------------
Total Distribution Plan 0.35%
----------------------------------------------
The fund's payment of the 10% per annum Class A distribution fee and the 0.25%
per annum Class A service fee are currently being waived by MFD.
Certain Class A shares are subject to a contingent deferred sales charge in
the event of a shareholder redemption within 12 months following purchase. MFD
receives all contingent deferred sales charges. There were no contingent
deferred sales charges imposed on Class A shares during the year ended
August 31, 2003.
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
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$3,820,928 and $3,762,298, 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 $3,291,372
----------------------------------------------
Gross unrealized appreciation $912,106
----------------------------------------------
Gross unrealized depreciation (59,372)
----------------------------------------------
Net unrealized appreciation $852,734
----------------------------------------------
(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:
Year ended 8/31/03 Year ended 8/31/02
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 7,249 $44,597 8,445 $56,345
- ------------------------------------------------------------------------------
Shares reacquired (431) (2,745) (8,132) (55,962)
- ------------------------------------------------------------------------------
Net increase 6,818 $41,852 313 $383
- ------------------------------------------------------------------------------
Period ended 8/31/
Year ended 8/31/03 02*
CLASS I SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 62,702 $414,034 21,869 $149,439
- ------------------------------------------------------------------------------
Shares reacquired (63,841) (417,808) (2,580) (17,467)
- ------------------------------------------------------------------------------
Net increase (decrease) (1,139) $(3,774) 19,289 $131,972
- ------------------------------------------------------------------------------
* For the period from the inception of Class I, July 31, 2002, through
August 31, 2002.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million 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, 2003, was $24. The fund had no borrowings during the year.
(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.
There were no outstanding financial instruments with off-balance-sheet risk at
the end of the period.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust I and Shareholders of MFS Japan Equity
Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Japan Equity Fund (the Fund) (one of the portfolios constituting MFS Series
Trust I), including the portfolio of investments, as of August 31, 2003, 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 periods indicated therein. 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, 2003, 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
Japan Equity Fund at August 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years then
ended and its financial highlights for the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 10, 2003
- ------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust I, of
which the fund is a series, including their principal occupations, which, unless specific dates are shown, are
of more than five years' duration, although the titles may not have been the same throughout.
Name, Age, Position with the Trust, Principal Occupation, and Other Directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) Chairman ABBY M. O'NEILL (born 04/27/28) Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Trustee and Executive Officer
President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35) Trustee
Executive Officer and Director Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59) Trustee WILLIAM J. POORVU (born 04/10/35) Trustee
Massachusetts Financial Services Company, Private investor; Harvard University Graduate
President, Chief Investment Officer and Director School of Business Administration, Class of 1961
Adjunct Professor in Entrepreneurship Emeritus;
INDEPENDENT TRUSTEES CBL & Associates Properties, Inc. (real estate
investment trust), Director
LAWRENCE H. COHN, M.D. (born 03/11/37) Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38) Trustee
Surgery; Harvard Medical School, Professor of Insight Resources, Inc. (acquisition planning
Surgery specialists), President; Wellfleet Investments
(investor in health care companies), Managing
WILLIAM R. GUTOW (born 09/27/41) Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) Trustee ELAINE R. SMITH (born 04/25/46) Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30) Trustee
and Chief Executive Officer (until November 2000) Private investor
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) Chairman ROBERT R. FLAHERTY (born 09/18/63) Assistant
Massachusetts Financial Services Company, Chairman Treasurer
Massachusetts Financial Services Company, Vice
JOHN W. BALLEN (born 09/12/59) Trustee and President (since August 2000); UAM Fund Services,
President Senior Vice President (prior to August 2000)
Massachusetts Financial Services Company, Chief
Executive Officer and Director RICHARD M. HISEY (born 08/29/58) Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Assistant Vice President (since July 2002); The Bank of New
Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington
STEPHEN E. CAVAN (born 11/06/53) Secretary and Funds, Treasurer (prior to September 2000)
Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57) Assistant Treasurer
Vice President, General Counsel and Secretary Massachusetts Financial Services Company, Vice
President
STEPHANIE A. DESISTO (born 10/01/53) Assistant
Treasurer JAMES O. YOST (born 06/12/60) Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Senior
President (since April 2003); Brown Brothers Vice President
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Cohn, Sherratt and Smith, and Ms. O'Neill, have served in their capacity as Trustee of the
Trust continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu, and
Ms. Smith, were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr.
Parke has served as a Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
INVESTMENT ADVISER INVESTOR SERVICE
Massachusetts Financial Services Company MFS Service Center, Inc.
500 Boylston Street P.O. Box 2281
Boston, MA 02116-3741 Boston, MA 02107-9906
DISTRIBUTOR For general information, call toll free:
MFS Fund Distributors, Inc. 1-800-225-2606 any business day from 8 a.m. to
500 Boylston Street 8 p.m. Eastern time.
Boston, MA 02116-3741
For service to speech- or hearing-impaired
DIRECTOR OF GLOBAL EQUITY RESEARCH individuals, call toll free: 1-800-637-6576 any
David A. Antonelli(1) business day from 9 a.m. to 5 p.m. Eastern time.
(To use this service, your phone must be equipped
CUSTODIAN with a Telecommunications Device for the Deaf).
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110 For share prices, account balances, exchanges or
stock and bond outlooks, call toll free:
AUDITORS 1-800-MFS-TALK (1-800-637-8255) anytime from a
Ernst & Young LLP touch-tone telephone.
200 Clarendon Street
Boston, MA 02116 WORLD WIDE WEB
www.mfs.com
INVESTOR INFORMATION
For information on MFS mutual funds, call your
investment professional or, for an information
kit, call toll free: 1-800-637-2929 any business
day from 9 a.m. to 5 p.m. Eastern time (or leave a
message anytime).
A general description of the MFS Funds proxy
voting policies is available without charge, upon
request, by calling 1-800-225-2606, by visiting
the About MFS section of mfs.com, or by visiting
the SEC's website at http://www.sec.gov.
(1) MFS Investment Management
MFS(R) JAPAN EQUITY FUND
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C)2003 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
INC XAA-ANN-9/03 310
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/03
MFS(R) VALUE FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) VALUE FUND
Seeks capital appreciation and reasonable income.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ----------------------------------------------------
FINANCIAL STATEMENTS 18
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 31
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT 39
- ----------------------------------------------------
TRUSTEES AND OFFICERS 40
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 42
- ----------------------------------------------------
FEDERAL TAX INFORMATION 43
- ----------------------------------------------------
CONTACT INFORMATION 44
- ----------------------------------------------------
ASSET ALLOCATION 45
- -------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
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
MFS Investment Management(R)
September 15, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- --------------------------------------------------------------------------------
MANAGEMENT REVIEW
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
During the period, the fund provided positive returns but lagged its benchmark
on a relative basis. For the past year, the value stocks that performed the
best were typically higher-risk, lower-quality stocks in terms of balance
sheet characteristics and/or earnings quality. Many of these stocks rebounded
from very depressed, or in some cases, distressed levels in 2002. The rebound
in lower-quality assets this year has been driven by improved access to
capital as the U.S. Federal Reserve Board added liquidity to the banking
system and eased financial pressures.
While this fund seeks undervalued stocks, we have a quality focus and have
historically invested in companies with solid balance sheets, good cash
generation, and sustainable franchises throughout market cycles. This
combination of value and quality has been important in driving the historical
returns and lower volatility of the portfolio, but it has also led to relative
underperformance during periods characterized by rebounds of low-quality
assets.
DETRACTORS FROM PERFORMANCE
While the stocks in the portfolio generally performed well, our holdings in
retail, utilities & communications, and leisure detracted the most from our
performance relative to the fund's benchmark. In retail, our underperformance
was due to our position in Sears last autumn. The stock declined after the
company announced that the quality of its credit card portfolio was worse than
the firm had previously known or disclosed. We reestablished a position in the
stock this year after the company announced that it would sell the credit card
business to focus more closely on restructuring its retail franchise. Our
other holdings in retail, including Nike, Kroger, and Home Depot all performed
well, but their performance was not enough to offset the relative
underperformance of Sears. Nike and Home Depot were sold when they reached our
performance target.
In utilities, our emphasis on traditional, regulated gas and electric
utilities, which represented good value in our view and offered premium yields,
detracted from relative performance as the higher-beta power-merchant stocks
rebounded from distressed levels in 2002. (Beta is a measure of a stock's
historic level of risk relative to the market as a whole; the higher the beta
is, the greater the risk.) In telecommunications, AT&T declined. While the
company made significant progress in repairing its balance sheet through asset
sales and restructuring, it was unable to capitalize on the troubles at
competitor Worldcom, and that inability to do so disappointed investors. As the
stock rebounded earlier this year, we eliminated our position.
In the leisure sector, our holdings in more conservative publishing stocks
such as Reed Elsevier and Gannett, both with strong balance sheets, healthy
cash flows, and reasonable valuations, lagged the sector, which was led by
more volatile cable, broadcasting, and gaming/recreation stocks. The fund no
longer owns Gannett.
Although our positioning in financial services did not detract from overall
relative performance, our position in the Federal National Mortgage
Association (Fannie Mae) was among the biggest detractors, offsetting gains
elsewhere in the sector. Federal Home Loan Corporation's (Freddie Mac)
restatement of past earnings raised concerns about increased regulatory
scrutiny and its potential effect on both companies. We continue to have
confidence in the quality of Fannie Mae's business and consider the stock's
valuation attractive.
The relative performance of the fund was also negatively affected by not
owning J.P. Morgan Chase & Co. Even though the company's stock rose over the
period, we had less confidence in its earnings power and balance sheet
strength versus other financial holdings, such as Citigroup.
CONTRIBUTORS TO PERFORMANCE
The fund's positions in industrial goods & services contributed to
performance, as did our underweighted position in autos and housing. In the
industrial goods & services sector, our holdings in Caterpillar and Deere
contributed to performance. Caterpillar and Deere improved profit margins
during the period by cutting costs, reengineering manufacturing processes, and
reducing manufacturing capacity.
Although we were underweight in technology, our positions in Intel, Analog
Devices, and Texas Instruments were among the most significant contributors to
the portfolio's performance. Reasonable valuations and improving fundamentals
in the semiconductor business, both PC and communications related, helped to
drive these stocks higher. Both Intel and Analog Devices were sold when they
reached our performance targets.
Respectfully,
/s/ Steven R. Gorham /s/ Lisa B. Nurme
Steven R. Gorham Lisa B. Nurme
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 8/31/03
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. 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. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. (See Notes to Performance Summary.)
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, 2003. Index information is from January 2,
1996.
MFS Value Fund - Russell 1000
Class A Value Index
1/96 $ 9,425 $10,000
8/96 10,433 10,638
8/98 15,772 15,421
8/00 22,727 20,893
8/02 21,190 17,946
8/03 22,508 20,033
TOTAL RETURNS
- -----------------------
Average annual
without sales charge
- -----------------------
Class
Share class inception date 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/2/1996 6.22% -0.32% 7.37% 12.03%
- ------------------------------------------------------------------------------
B 11/4/1997 5.50% -0.96% 6.68% 11.49%
- ------------------------------------------------------------------------------
C 11/5/1997 5.52% -0.96% 6.69% 11.49%
- ------------------------------------------------------------------------------
I 1/2/1997 6.61% 0.03% 7.80% 12.27%
- ------------------------------------------------------------------------------
R 12/31/2002 6.16% -0.34% 7.36% 12.02%
- ------------------------------------------------------------------------------
529A 7/31/2002 5.97% -0.40% 7.32% 12.00%
- ------------------------------------------------------------------------------
529B 7/31/2002 5.29% -0.63% 7.17% 11.89%
- ------------------------------------------------------------------------------
529C 7/31/2002 5.31% -0.62% 7.18% 11.90%
- ------------------------------------------------------------------------------
Comparative Benchmarks
- -----------------------
Average annual
- -----------------------
- ------------------------------------------------------------------------------
Average equity income fund+ 8.84% -2.15% 3.89% 6.92%
- ------------------------------------------------------------------------------
Russell 1000 Value Index# 11.63% -1.39% 5.37% 9.49%
- ------------------------------------------------------------------------------
- -----------------------
Average annual
with sales charge
- -----------------------
Share class 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 0.11% -2.27% 6.11% 11.17%
- ------------------------------------------------------------------------------
B 1.50% -1.91% 6.37% 11.49%
- ------------------------------------------------------------------------------
C 4.52% -0.96% 6.69% 11.49%
- ------------------------------------------------------------------------------
529A -0.12% -2.35% 6.06% 11.13%
- ------------------------------------------------------------------------------
529B 1.29% -1.57% 6.87% 11.89%
- ------------------------------------------------------------------------------
529C 4.31% -0.62% 7.18% 11.90%
- ------------------------------------------------------------------------------
I and R class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- -----------------------
Cumulative without
sales charge
- -----------------------
- ------------------------------------------------------------------------------
A 6.22% -0.96% 42.71% 138.81%
- ------------------------------------------------------------------------------
B 5.50% -2.84% 38.18% 130.15%
- ------------------------------------------------------------------------------
C 5.52% -2.86% 38.24% 130.19%
- ------------------------------------------------------------------------------
I 6.61% 0.10% 45.57% 142.76%
- ------------------------------------------------------------------------------
R 6.16% -1.02% 42.62% 138.67%
- ------------------------------------------------------------------------------
529A 5.97% -1.19% 42.37% 138.25%
- ------------------------------------------------------------------------------
529B 5.29% -1.88% 41.38% 136.59%
- ------------------------------------------------------------------------------
529C 5.31% -1.86% 41.41% 136.64%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 2003. Index information is from January
2, 1996.
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Bloomberg
INDEX DEFINITION
RUSSELL 1000 VALUE INDEX - Measures the performance of large-cap U.S.
value stocks.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results, including sales charge, reflects the deduction of
the maximum 5.75% sales charge. Class B and 529B results, including sales
charge, reflects the deduction of the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C and 529C
results, including sales charge, redeemed within one year from the end of the
calendar month of purchase reflects the deduction of the 1% CDSC. Class I
shares have no sales charges and are available only to certain investors.
Class R shares have no sales charges and are available only to certain
retirement plans. Class 529A, 529B, and 529C shares are only available in
conjunction with qualified tuition programs, such as the MFS 529 Savings Plan.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
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 and financial statements for details. All
results are historical and assume the reinvestment of dividends and
capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- -----------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 8/31/03
- -----------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It's divided by
broad-based asset classes.
Stocks - 95.2%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - 85.9%
- -----------------------------------------------------------------------------------------------------
Aerospace - 0.9%
- -----------------------------------------------------------------------------------------------------
Northrop Grumman Corp. 463,500 $44,254,980
- -----------------------------------------------------------------------------------------------------
Banks & Credit Companies - 18.1%
- -----------------------------------------------------------------------------------------------------
American Express Co. 1,109,600 $49,987,480
- -----------------------------------------------------------------------------------------------------
Bank of America Corp. 1,779,100 140,993,675
- -----------------------------------------------------------------------------------------------------
Bank One Corp. 910,700 35,945,329
- -----------------------------------------------------------------------------------------------------
Citigroup, Inc. 4,102,400 177,839,040
- -----------------------------------------------------------------------------------------------------
Fannie Mae 1,597,620 103,509,800
- -----------------------------------------------------------------------------------------------------
FleetBoston Financial Corp. 3,790,260 112,153,793
- -----------------------------------------------------------------------------------------------------
Mellon Financial Corp. 3,388,900 106,242,015
- -----------------------------------------------------------------------------------------------------
National City Corp. 382,000 12,101,760
- -----------------------------------------------------------------------------------------------------
SouthTrust Corp. 1,211,400 35,118,486
- -----------------------------------------------------------------------------------------------------
SunTrust Banks, Inc. 1,837,430 112,322,096
- -----------------------------------------------------------------------------------------------------
Wachovia Corp. 765,900 32,282,685
- -----------------------------------------------------------------------------------------------------
$918,496,159
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.0%
- -----------------------------------------------------------------------------------------------------
AOL Time Warner, Inc.* 2,233,400 $36,538,424
- -----------------------------------------------------------------------------------------------------
Cox Communications, Inc., "A"* 1,927,000 63,051,440
- -----------------------------------------------------------------------------------------------------
$99,589,864
- -----------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.8%
- -----------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 1,258,100 $111,329,269
- -----------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 1,515,000 81,476,700
- -----------------------------------------------------------------------------------------------------
$192,805,969
- -----------------------------------------------------------------------------------------------------
Chemicals - 4.0%
- -----------------------------------------------------------------------------------------------------
3M Co. 60,800 $8,662,176
- -----------------------------------------------------------------------------------------------------
Air Products & Chemicals, Inc. 1,326,568 62,773,198
- -----------------------------------------------------------------------------------------------------
Dow Chemical Co. 1,574,700 54,374,391
- -----------------------------------------------------------------------------------------------------
PPG Industries, Inc. 1,383,900 75,989,949
- -----------------------------------------------------------------------------------------------------
$201,799,714
- -----------------------------------------------------------------------------------------------------
Computer Software - 0.9%
- -----------------------------------------------------------------------------------------------------
Microsoft Corp. 1,680,600 $44,569,512
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.2%
- -----------------------------------------------------------------------------------------------------
International Business Machines Corp. 758,200 $62,179,982
- -----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.9%
- -----------------------------------------------------------------------------------------------------
Kimberly-Clark Corp. 2,059,400 $105,255,934
- -----------------------------------------------------------------------------------------------------
Procter & Gamble Co. 503,140 43,919,091
- -----------------------------------------------------------------------------------------------------
$149,175,025
- -----------------------------------------------------------------------------------------------------
Containers - 0.5%
- -----------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.* 1,697,700 $26,789,706
- -----------------------------------------------------------------------------------------------------
Electrical Equipment - 1.0%
- -----------------------------------------------------------------------------------------------------
Emerson Electric Co. 947,800 $52,849,328
- -----------------------------------------------------------------------------------------------------
Electronics - 0.6%
- -----------------------------------------------------------------------------------------------------
Texas Instruments, Inc. 1,215,900 $28,999,215
- -----------------------------------------------------------------------------------------------------
Energy - Independent - 0.6%
- -----------------------------------------------------------------------------------------------------
Devon Energy Corp. 630,010 $32,603,018
- -----------------------------------------------------------------------------------------------------
Energy - Integrated - 6.7%
- -----------------------------------------------------------------------------------------------------
ChevronTexaco Corp. 618,100 $45,040,947
- -----------------------------------------------------------------------------------------------------
ConocoPhillips 1,699,700 94,911,248
- -----------------------------------------------------------------------------------------------------
ExxonMobil Corp. 4,202,870 158,448,199
- -----------------------------------------------------------------------------------------------------
Unocal Corp. 1,271,686 38,939,025
- -----------------------------------------------------------------------------------------------------
$337,339,419
- -----------------------------------------------------------------------------------------------------
Entertainment - 1.8%
- -----------------------------------------------------------------------------------------------------
Viacom, Inc., "B" 2,030,743 $91,383,435
- -----------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.5%
- -----------------------------------------------------------------------------------------------------
Kroger Co.* 782,000 $15,022,220
- -----------------------------------------------------------------------------------------------------
Safeway, Inc.* 413,400 10,091,094
- -----------------------------------------------------------------------------------------------------
$25,113,314
- -----------------------------------------------------------------------------------------------------
Food & Non Alcoholic Beverages - 5.3%
- -----------------------------------------------------------------------------------------------------
Archer-Daniels-Midland Co. 5,561,215 $77,134,052
- -----------------------------------------------------------------------------------------------------
Heinz (H.J.) Co. 1,035,000 33,492,600
- -----------------------------------------------------------------------------------------------------
Hormel Foods Corp. 246,600 5,326,560
- -----------------------------------------------------------------------------------------------------
Kellogg Co. 3,235,700 108,493,021
- -----------------------------------------------------------------------------------------------------
PepsiCo, Inc. 692,176 30,829,519
- -----------------------------------------------------------------------------------------------------
Tyson Foods, Inc., "A" 1,153,600 12,920,320
- -----------------------------------------------------------------------------------------------------
$268,196,072
- -----------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.6%
- -----------------------------------------------------------------------------------------------------
Bowater, Inc. 566,800 $24,548,108
- -----------------------------------------------------------------------------------------------------
International Paper Co. 1,430,400 58,002,720
- -----------------------------------------------------------------------------------------------------
$82,550,828
- -----------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.5%
- -----------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Co. 780,800 $26,414,464
- -----------------------------------------------------------------------------------------------------
General Merchandise - 0.6%
- -----------------------------------------------------------------------------------------------------
Sears, Roebuck & Co. 651,000 $28,657,020
- -----------------------------------------------------------------------------------------------------
Insurance - 5.8%
- -----------------------------------------------------------------------------------------------------
Allstate Corp. 1,679,590 $60,045,343
- -----------------------------------------------------------------------------------------------------
Chubb Corp. 690,900 46,939,746
- -----------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. 857,755 45,649,721
- -----------------------------------------------------------------------------------------------------
MetLife, Inc. 2,567,710 72,974,318
- -----------------------------------------------------------------------------------------------------
The St. Paul Cos., Inc. 674,400 23,442,144
- -----------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., "A" 3,013,173 46,372,732
- -----------------------------------------------------------------------------------------------------
$295,424,004
- -----------------------------------------------------------------------------------------------------
Leisure & Toys - 0.1%
- -----------------------------------------------------------------------------------------------------
Hasbro, Inc. 289,700 $5,359,450
- -----------------------------------------------------------------------------------------------------
Machinery & Tools - 2.4%
- -----------------------------------------------------------------------------------------------------
Caterpillar, Inc. 306,710 $22,030,979
- -----------------------------------------------------------------------------------------------------
Deere & Co. 1,729,116 97,712,345
- -----------------------------------------------------------------------------------------------------
$119,743,324
- -----------------------------------------------------------------------------------------------------
Medical Equipment - 0.6%
- -----------------------------------------------------------------------------------------------------
Guidant Corp. 373,500 $18,749,700
- -----------------------------------------------------------------------------------------------------
Waters Corp.* 406,700 12,404,350
- -----------------------------------------------------------------------------------------------------
$31,154,050
- -----------------------------------------------------------------------------------------------------
Metals & Mining - 0.7%
- -----------------------------------------------------------------------------------------------------
Alcoa, Inc. 1,176,270 $33,594,271
- -----------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 1.2%
- -----------------------------------------------------------------------------------------------------
AGL Resources, Inc. 107,600 $2,994,508
- -----------------------------------------------------------------------------------------------------
Equitable Resources, Inc. 17,100 674,937
- -----------------------------------------------------------------------------------------------------
Keyspan Corp. 588,900 19,875,375
- -----------------------------------------------------------------------------------------------------
National Fuel Gas Co. 1,080,932 25,023,576
- -----------------------------------------------------------------------------------------------------
WGL Holdings, Inc. 430,413 11,573,805
- -----------------------------------------------------------------------------------------------------
$60,142,201
- -----------------------------------------------------------------------------------------------------
Oil Services - 2.9%
- -----------------------------------------------------------------------------------------------------
Baker Hughes, Inc. 891,100 $29,816,206
- -----------------------------------------------------------------------------------------------------
Noble Corp.* 1,325,550 47,958,399
- -----------------------------------------------------------------------------------------------------
Schlumberger Ltd. 1,363,810 67,522,233
- -----------------------------------------------------------------------------------------------------
$145,296,838
- -----------------------------------------------------------------------------------------------------
Pharmaceuticals - 4.9%
- -----------------------------------------------------------------------------------------------------
Abbott Laboratories, Inc. 619,080 $24,948,924
- -----------------------------------------------------------------------------------------------------
Johnson & Johnson Co. 1,145,600 56,798,848
- -----------------------------------------------------------------------------------------------------
Pfizer, Inc. 3,415,100 102,179,792
- -----------------------------------------------------------------------------------------------------
Schering Plough Corp. 4,124,200 62,646,598
- -----------------------------------------------------------------------------------------------------
$246,574,162
- -----------------------------------------------------------------------------------------------------
Printing & Publishing - 2.0%
- -----------------------------------------------------------------------------------------------------
Knight-Ridder, Inc. 377,300 $25,603,578
- -----------------------------------------------------------------------------------------------------
Tribune Co. 1,619,044 74,880,785
- -----------------------------------------------------------------------------------------------------
$100,484,363
- -----------------------------------------------------------------------------------------------------
Railroad & Shipping - 1.3%
- -----------------------------------------------------------------------------------------------------
Union Pacific Corp. 1,125,700 $68,600,158
- -----------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.3%
- -----------------------------------------------------------------------------------------------------
Praxair, Inc. 243,000 $15,508,260
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 0.9%
- -----------------------------------------------------------------------------------------------------
Motorola, Inc. 4,334,700 $46,511,331
- -----------------------------------------------------------------------------------------------------
Telephone Services - 4.2%
- -----------------------------------------------------------------------------------------------------
BellSouth Corp. 3,849,310 $97,002,612
- -----------------------------------------------------------------------------------------------------
SBC Communications, Inc. 2,917,500 65,614,575
- -----------------------------------------------------------------------------------------------------
Verizon Communications, Inc. 1,420,300 50,164,996
- -----------------------------------------------------------------------------------------------------
$212,782,183
- -----------------------------------------------------------------------------------------------------
Tobacco - 2.3%
- -----------------------------------------------------------------------------------------------------
Altria Group, Inc. 2,874,430 $118,484,005
- -----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.8%
- -----------------------------------------------------------------------------------------------------
Energy East Corp. 1,377,000 $29,729,430
- -----------------------------------------------------------------------------------------------------
FPL Group, Inc. 347,100 21,471,606
- -----------------------------------------------------------------------------------------------------
NSTAR Co. 803,440 35,833,424
- -----------------------------------------------------------------------------------------------------
PPL Corp. 612,570 24,300,652
- -----------------------------------------------------------------------------------------------------
TXU Corp. 1,423,800 31,323,600
- -----------------------------------------------------------------------------------------------------
$142,658,712
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $4,356,084,336
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 9.3%
- -----------------------------------------------------------------------------------------------------
Canada - 0.8%
- -----------------------------------------------------------------------------------------------------
Nortel Networks Corp. (Telecommunications - Wireline)* 11,695,100 $38,009,075
- -----------------------------------------------------------------------------------------------------
France - 0.8%
- -----------------------------------------------------------------------------------------------------
Total Fina S.A., ADR (Energy - Integrated) 545,980 $42,045,920
- -----------------------------------------------------------------------------------------------------
Switzerland - 2.9%
- -----------------------------------------------------------------------------------------------------
Novartis AG (Pharmaceuticals) 1,574,100 $57,918,872
- -----------------------------------------------------------------------------------------------------
Roche Holding AG (Pharmaceuticals) 456,800 35,002,894
- -----------------------------------------------------------------------------------------------------
Syngenta AG (Chemicals) 951,040 52,320,280
- -----------------------------------------------------------------------------------------------------
$145,242,046
- -----------------------------------------------------------------------------------------------------
United Kingdom - 4.8%
- -----------------------------------------------------------------------------------------------------
BP Amoco PLC, ADR (Energy - Integrated) 2,657,100 $110,854,212
- -----------------------------------------------------------------------------------------------------
Diageo PLC (Alcoholic Beverages)* 3,185,073 34,065,812
- -----------------------------------------------------------------------------------------------------
Reed Elsevier PLC (Printing & Publishing) 7,857,100 60,113,730
- -----------------------------------------------------------------------------------------------------
Rio Tinto Group (Metals & Mining)* 1,736,900 38,112,865
- -----------------------------------------------------------------------------------------------------
$243,146,619
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $468,443,660
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $4,603,776,655) $4,824,527,996
- -----------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.9%
- -----------------------------------------------------------------------------------------------------
Aerospace - 0.2%
- -----------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.25s 77,500 $8,060,000
- -----------------------------------------------------------------------------------------------------
Insurance - 0.2%
- -----------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 4.5s 483,610 $11,156,883
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 0.4%
- -----------------------------------------------------------------------------------------------------
Motorola, Inc., 7.0s 552,700 $19,316,865
- -----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 0.1%
- -----------------------------------------------------------------------------------------------------
TXU Corp., 8.75s 180,540 $5,793,528
- -----------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(Identified Cost, $53,095,418) $44,327,276
- -----------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.3%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
Citigroup, Inc., due 9/02/03 $24,000 $23,999,287
- -----------------------------------------------------------------------------------------------------
DaimlerChrysler Corp., due 9/15/03 5,000 4,997,608
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 9/02/03 8,475 8,474,802
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage, due 9/24/03 10,000 9,993,611
- -----------------------------------------------------------------------------------------------------
First Data Corp., due 9/03/03 11,000 10,999,365
- -----------------------------------------------------------------------------------------------------
Ford Motor Credit Corp., due 9/12/03 12,000 11,995,490
- -----------------------------------------------------------------------------------------------------
General Electric Capital Corp., due 9/02/03 26,440 26,439,178
- -----------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., due 9/02/03 - 9/22/03 25,350 25,347,790
- -----------------------------------------------------------------------------------------------------
Govco, Inc., due 9/02/03 5,271 5,270,846
- -----------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter, due 9/02/03 - 9/03/03 28,968 28,966,755
- -----------------------------------------------------------------------------------------------------
Quincy Capital Corp., due 9/24/03 12,000 11,991,873
- -----------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $168,476,605
- -----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 5.2%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Amortized Cost 263,302,051 $263,302,051
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $5,088,650,729) $5,300,633,928
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (4.6)% (230,958,776)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $5,069,675,152
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 8/31/03
ASSETS
Investments, at value, including $255,655,960 of
securities on loan (identified cost, $5,088,650,729) $5,300,633,928
- -----------------------------------------------------------------------------------------------------
Cash 156,055
- -----------------------------------------------------------------------------------------------------
Foreign currency, at value (identified cost $8,135) 8,201
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 23,468,632
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 19,632,475
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 12,180,499
- -----------------------------------------------------------------------------------------------------
Total assets $5,356,079,790
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund investments purchased $12,385,397
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 9,397,143
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 263,302,051
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 246,443
- -----------------------------------------------------------------------------------------------------
Shareholders servicing agent fee 45,181
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 226,100
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 802,323
- -----------------------------------------------------------------------------------------------------
Total liabilities $286,404,638
- -----------------------------------------------------------------------------------------------------
Net assets $5,069,675,152
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $5,214,550,350
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 211,967,406
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (368,066,584)
- -----------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income 11,223,980
- -----------------------------------------------------------------------------------------------------
Total $5,069,675,152
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 281,583,651
- -----------------------------------------------------------------------------------------------------
Class A shares
Net assets $3,039,084,841
- -----------------------------------------------------------------------------------------------------
Shares outstanding 168,520,809
- -----------------------------------------------------------------------------------------------------
Net asset value per share $18.03
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 X $18.03) $19.13
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
Net assets $1,069,388,729
- -----------------------------------------------------------------------------------------------------
Shares outstanding 59,605,298
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.94
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $648,318,608
- -----------------------------------------------------------------------------------------------------
Shares outstanding 36,163,423
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.93
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $296,960,829
- -----------------------------------------------------------------------------------------------------
Shares outstanding 16,409,918
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $18.10
- -----------------------------------------------------------------------------------------------------
Class R shares
Net assets $14,582,702
- -----------------------------------------------------------------------------------------------------
Shares outstanding 809,492
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $18.01
- -----------------------------------------------------------------------------------------------------
Class 529A shares
Net assets $806,496
- -----------------------------------------------------------------------------------------------------
Shares outstanding 44,872
- -----------------------------------------------------------------------------------------------------
Net asset value per share $17.97
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 X $17.97) $19.07
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $180,799
- -----------------------------------------------------------------------------------------------------
Shares outstanding 10,118
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.87
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $352,148
- -----------------------------------------------------------------------------------------------------
Shares outstanding 19,721
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.86
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares are reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529B, and Class 529C shares.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
FOR YEAR ENDED 8/31/03
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------
Dividends $101,273,156
- -----------------------------------------------------------------------------------------------------
Interest 2,357,016
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (1,072,490)
- -----------------------------------------------------------------------------------------------------
Total investment income $102,557,682
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $23,702,685
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 43,969
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 4,142,027
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 8,064,046
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 9,517,711
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 5,265,540
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R) 19,098
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 1,278
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 911
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 1,866
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 914
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 228
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 466
- -----------------------------------------------------------------------------------------------------
Administrative fee 348,573
- -----------------------------------------------------------------------------------------------------
Custodian fee 1,155,531
- -----------------------------------------------------------------------------------------------------
Printing 211,302
- -----------------------------------------------------------------------------------------------------
Postage 328,109
- -----------------------------------------------------------------------------------------------------
Auditing fees 33,000
- -----------------------------------------------------------------------------------------------------
Legal fees 29,814
- -----------------------------------------------------------------------------------------------------
Miscellaneous 3,608,654
- -----------------------------------------------------------------------------------------------------
Total expenses $56,475,722
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (177,285)
- -----------------------------------------------------------------------------------------------------
Net expenses $56,298,437
- -----------------------------------------------------------------------------------------------------
Net investment income $46,259,245
- -----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $(203,801,194)
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions 212,066
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions $(203,589,128)
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $467,930,829
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies (21,857)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $467,908,972
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency $264,319,844
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $310,579,089
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $46,259,245 $21,443,093
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (203,589,128) (157,190,358)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 467,908,972 (209,963,293)
- -------------------------------------------------------- --------------- --------------
Increase (decrease) in net assets from operations $310,579,089 $(345,710,558)
- -------------------------------------------------------- --------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -----------------------------------------------------------------------------------------------------
Class A $(30,155,170) $(11,056,998)
- -----------------------------------------------------------------------------------------------------
Class B (6,842,835) (1,654,534)
- -----------------------------------------------------------------------------------------------------
Class C (3,806,070) (858,774)
- -----------------------------------------------------------------------------------------------------
Class I (2,484,936) (692,544)
- -----------------------------------------------------------------------------------------------------
Class R (42,804) --
- -----------------------------------------------------------------------------------------------------
Class 529A (4,879) --
- -----------------------------------------------------------------------------------------------------
Class 529B (524) --
- -----------------------------------------------------------------------------------------------------
Class 529C (1,190) --
- -----------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions
- -----------------------------------------------------------------------------------------------------
Class A -- (2,362,671)
- -----------------------------------------------------------------------------------------------------
Class B -- (1,484,949)
- -----------------------------------------------------------------------------------------------------
Class C -- (791,051)
- -----------------------------------------------------------------------------------------------------
Class I -- (107,821)
- -----------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets - continued
In excess of net realized gain on investments and foreign
currency transactions
- -----------------------------------------------------------------------------------------------------
Class A $-- $(2,924,674)
- -----------------------------------------------------------------------------------------------------
Class B -- (1,838,170)
- -----------------------------------------------------------------------------------------------------
Class C -- (979,215)
- -----------------------------------------------------------------------------------------------------
Class I -- (133,467)
- -------------------------------------------------------- --------------- --------------
Total distributions declared to shareholders $(43,338,408) $(24,884,868)
- -------------------------------------------------------- --------------- --------------
Net increase in net assets from fund share transactions $1,508,028,261 $1,573,287,996
- -------------------------------------------------------- --------------- --------------
Total increase in net assets $1,775,268,942 $1,202,692,570
- -------------------------------------------------------- --------------- --------------
NET ASSETS
At beginning of period $3,294,406,210 $2,091,713,640
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated undistributed
net investment income of $11,223,980 and $8,341,824,
respectively) $5,069,675,152 $3,294,406,210
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years (or, if
shorter, the period of the fund's operation). Certain information reflects financial results for a single fund share. The total
returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund (assuming
reinvestment of all distributions). This information has been audited by the fund's independent auditors, whose report, together
with the fund's financial statements, are included in this report.
FOR YEARS ENDED 8/31
CLASS A 2003 2002 2001 2000 1999
Net asset value, beginning of period $17.21 $19.28 $19.38 $17.17 $14.20
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.24 $0.20 $0.20 $0.24 $0.24
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.81 (2.05) 0.44 2.43 3.17
- -------------------------------------------- ------- -------- ------- ------- ------
Total from investment operations $1.05 $(1.85) $0.64 $2.67 $3.41
- -------------------------------------------- ------- -------- ------- ------- ------
LESS DISTRIBUTIONS
From net investment income $(0.23) $(0.15) $(0.19) $(0.22) $(0.22)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- (0.03) (0.55) (0.24) (0.22)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- (0.04) -- -- --
- -------------------------------------------- ------- -------- ------- ------- ------
Total distributions declared to
shareholders $(0.23) $(0.22) $(0.74) $(0.46) $(0.44)
- -------------------------------------------- ------- -------- ------- ------- ------
Net asset value, end of period $18.03 $17.21 $19.28 $19.38 $17.17
- -------------------------------------------- ------- -------- ------- ------- ------
Total return (%)(+) 6.22 (9.64) 3.19 15.95 24.27
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
CLASS A - CONTINUED 2003 2002 2001 2000 1999
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.20 1.25 1.21 1.30 1.36
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.41 1.05 1.00 1.38 1.47
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 48 63 83 97
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $3,039,085 $1,820,568 $981,373 $165,616 $51,753
- -------------------------------------------------------------------------------------------------------------------------------
(S) Through June 30, 2000, subject to reimbursement by the fund, the investment adviser agreed to maintain expenses of the fund,
exclusive of management, distribution, and service fees, at not more than 0.40% of average daily net assets. To the extent
actual expenses were over this limitation, the net investment income per share and the ratios would have been:
Net investment income $-- $-- $-- $0.25 $0.24
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## -- -- -- 1.26 1.36
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income -- -- -- 1.42 1.47
- -------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(+) 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.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS B 2003 2002 2001 2000 1999
Net asset value, beginning of period $17.13 $19.19 $19.30 $17.11 $14.16
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.12 $0.07 $0.07 $0.13 $0.14
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.81 (2.02) 0.45 2.42 3.15
- -------------------------------------------- ------- -------- ------- ------- ------
Total from investment operations $0.93 $(1.95) $0.52 $2.55 $3.29
- -------------------------------------------- ------- -------- ------- ------- ------
LESS DISTRIBUTIONS
From net investment income $(0.12) $(0.04) $(0.08) $(0.12) $(0.12)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- (0.03) (0.55) (0.24) (0.22)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- (0.04) -- -- --
- -------------------------------------------- ------- -------- ------- ------- ------
Total distributions declared to
shareholders $(0.12) $(0.11) $(0.63) $(0.36) $(0.34)
- -------------------------------------------- ------- -------- ------- ------- ------
Net asset value, end of period $17.94 $17.13 $19.19 $19.30 $17.11
- -------------------------------------------- ------- -------- ------- ------- ------
Total return (%) 5.50 (10.20) 2.55 15.19 23.47
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.85 1.90 1.86 1.95 2.01
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.76 0.40 0.35 0.73 0.83
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 48 63 83 97
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $1,069,389 $923,330 $698,338 $125,713 $52,586
- -------------------------------------------------------------------------------------------------------------------------------
(S) Through June 30, 2000, subject to reimbursement by the fund, the investment adviser agreed to maintain expenses of the fund,
exclusive of management, distribution, and service fees, at not more than 0.40% of average daily net assets. To the extent
actual expenses were over this limitation, the net investment income per share and the ratios would have been:
Net investment income $-- $-- $-- $0.14 $0.14
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## -- -- -- 1.91 2.01
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income -- -- -- 0.77 0.83
- -------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS C 2003 2002 2001 2000 1999
Net asset value, beginning of period $17.12 $19.18 $19.30 $17.10 $14.16
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.12 $0.07 $0.07 $0.13 $0.14
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.81 (2.02) 0.44 2.43 3.15
- -------------------------------------------- ------- -------- ------- ------- ------
Total from investment operations $0.93 $(1.95) $0.51 $2.56 $3.29
- -------------------------------------------- ------- -------- ------- ------- ------
LESS DISTRIBUTIONS
From net investment income $(0.12) $(0.04) $(0.08) $(0.12) $(0.13)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- (0.03) (0.55) (0.24) (0.22)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- (0.04) -- -- --
- -------------------------------------------- ------- -------- ------- ------- ------
Total distributions declared to
shareholders $(0.12) $(0.11) $(0.63) $(0.36) $(0.35)
- -------------------------------------------- ------- -------- ------- ------- ------
Net asset value, end of period $17.93 $17.12 $19.18 $19.30 $17.10
- -------------------------------------------- ------- -------- ------- ------- ------
Total return (%) 5.52 (10.21) 2.52 15.27 23.47
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.85 1.90 1.86 1.95 2.01
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.76 0.40 0.35 0.73 0.84
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 48 63 83 97
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $648,318 $473,537 $366,154 $49,887 $19,053
- -------------------------------------------------------------------------------------------------------------------------------
(S) Through June 30, 2000, subject to reimbursement by the fund, the investment adviser agreed to maintain expenses of the fund,
exclusive of management, distribution, and service fees, at not more than 0.40% of average daily net assets. To the extent
actual expenses were over this limitation, the net investment income per share and the ratios would have been:
Net investment income $-- $-- $-- $0.14 $0.14
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## -- -- -- 1.91 2.01
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income -- -- -- 0.77 0.84
- -------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS I 2003 2002 2001 2000 1999
Net asset value, beginning of period $17.27 $19.35 $19.47 $17.24 $14.22
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.30 $0.27 $0.28 $0.30 $0.31
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.82 (2.06) 0.44 2.44 3.20
- -------------------------------------------- ------- -------- ------- ------- ------
Total from investment operations $1.12 $(1.79) $0.72 $2.74 $3.51
- -------------------------------------------- ------- -------- ------- ------- ------
LESS DISTRIBUTIONS
From net investment income $(0.29) $(0.22) $(0.29) $(0.27) $(0.27)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- (0.03) (0.55) (0.24) (0.22)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- (0.04) -- -- --
- -------------------------------------------- ------- -------- ------- ------- ------
Total distributions declared to
shareholders $(0.29) $(0.29) $(0.84) $(0.51) $(0.49)
- -------------------------------------------- ------- -------- ------- ------- ------
Net asset value, end of period $18.10 $17.27 $19.35 $19.47 $17.24
- -------------------------------------------- ------- -------- ------- ------- ------
Total return (%) 6.61 (9.35) 3.58 16.36 24.97
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.85 0.90 0.86 0.95 1.01
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.76 1.40 1.35 1.65 1.85
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 48 63 83 97
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $296,961 $76,932 $45,849 $34,189 $3,413
- -------------------------------------------------------------------------------------------------------------------------------
(S) Through June 30, 2000, subject to reimbursement by the fund, the investment adviser agreed to maintain expenses of the fund,
exclusive of management, distribution, and service fees, at not more than 0.40% of average daily net assets. To the extent
actual expenses were over this limitation, the net investment income per share and the ratios would have been:
Net investment income $-- $-- $-- $0.31 $0.31
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## -- -- -- 0.91 1.01
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income -- -- -- 1.69 0.85
- -------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR PERIOD ENDED 8/31
CLASS R 2003*
Net asset value, beginning of period $16.52
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.15
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.46
- ------------------------------------------------------------------------------
Total from investment operations $1.61
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS
From net investment income $(0.12)
- ------------------------------------------------------------------------------
Net asset value, end of period $18.01
- ------------------------------------------------------------------------------
Total return (%)++ 9.82
- -------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses##+ 1.42
- -------------------------------------------------------------------------------
Net investment income+ 1.26
- -------------------------------------------------------------------------------
Portfolio turnover 55
- -------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $14,583
- -------------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002,
through August 31, 2003.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
See notes to financial statements.
Financial Highlights - continued
YEAR PERIOD YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
8/31/03 8/31/02* 8/31/03 8/31/02* 8/31/03 8/31/02*
- -------------------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Net asset value, beginning of period $17.21 $17.01 $17.12 $16.93 $17.11 $16.92
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.20 $0.03 $0.09 $0.02 $0.09 $0.02
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 0.81 0.17 0.80 0.17 0.80 0.17
- ------------------------------------------------ ------ ------ ------ ------ ------
Total from investment operations $1.01 $0.20 $0.89 $0.19 $0.89 $0.19
- ------------------------------------------------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.25) $-- $(0.14) $-- $(0.14) $--
- ------------------------------------------------ ------ ------ ------ ------ ------
Net asset value, end of period $17.97 $17.21 $17.87 $17.12 $17.86 $17.11
- ------------------------------------------------ ------ ------ ------ ------ ------
Total return (%) 5.97(+) 1.18++(+) 5.29 1.12++ 5.31 1.12++
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.48 1.50+ 2.13 2.15+ 2.13 2.15+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.20 2.23+ 0.52 1.33+ 0.55 1.75+
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 48 55 48 55 48
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $806 $10 $181 $6 $352 $21
- -------------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529 shares, August 1, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
(+) Total returns for Class 529A shares do not include applicable sales charge. If the charge had been included, the results
would have been lower.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Value 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
accounting principles generally accepted in the United States of America
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 in the fund's portfolio for which
market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Short-term obligations in the fund's portfolio
are valued at amortized cost, which constitutes fair value as determined by
the Board of Trustees. Short-term obligations with a remaining maturity in
excess of 60 days will be valued upon dealer-supplied valuations. Portfolio
investments for which market quotations are not readily available, or whose
values have been materially affected by events occurring after the close of
their primary markets, are valued at fair value as determined in good faith by
or at the direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize a
joint trading account for the purpose of entering into one or more
repurchase agreements.
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 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.
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 foreign currency exchange 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 tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend 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. During the period, the fund's custodian fees were reduced by $43,846
under this arrangement. The fund has entered into a directed brokerage
agreement, under which the broker will credit the fund a portion of the
commissions generated, to offset certain expenses of the fund. For the period,
the fund's other expenses were reduced by $133,439 under this agreement. These
amounts are 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. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions and real estate investment trusts.
The tax character of distributions declared for the years ended August 31,
2003 and August 31, 2002 was as follows:
8/31/03 8/31/02
Distributions declared from:
Ordinary income $43,338,408 $14,275,598
- ------------------------------------------------------------------------------
Long-term capital gain -- 10,609,270
- ------------------------------------------------------------------------------
Total distributions declared $43,338,408 $24,884,868
- ------------------------------------------------------------------------------
During the year ended August 31, 2003, accumulated undistributed net
investment income decreased by $38,681, and accumulated net realized loss on
investments and foreign currency transactions decreased by $65,959, and paid-
in capital increased by $104,640 due to differences between book and tax
accounting for currency transactions and real estate investment trusts. This
change had no effect on the net assets or net asset value per share.
As of August 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $11,237,237
-----------------------------------------------------------
Capital loss carryforward (243,773,787)
-----------------------------------------------------------
Unrealized appreciation 176,356,424
-----------------------------------------------------------
Post-October capital loss deferral (88,681,815)
-----------------------------------------------------------
Other temporary differences (13,257)
-----------------------------------------------------------
For federal income tax purposes, the capital loss carry forward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on August 31, 2010, ($49,177,465) and
August 31, 2011, ($194,596,322). Post-October capital loss deferrals represent
losses realized during the current fiscal year, but recognized for tax
purposes in the next fiscal year.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses. Class B and Class
529B shares will convert to Class A and Class 529A shares, respectively
approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60%
of the fund's average daily net assets.
The fund pays compensation to the Independent Trustees ("Trustees") in the
form of both a retainer and attendance fees, and 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).
On January 1, 2002, the Trustees terminated the Independent Trustee unfunded
defined benefit plan for active Trustees. Included in Trustees' compensation
is a pension expense of $1,577 for inactive trustees for the year ended August
31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
at the following annual percentages of the fund's average daily net assets:
First $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 $584,826 and $2,437 for the year ended August 31, 2003, as its
portion of the sales charge on sales of Class A and Class 529A shares of the
fund, respectively.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class R, Class 529A, Class 529B, and Class 529C, 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 an annual
percentage of its average daily net assets attributable to certain share
classes 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
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the year ended August
31, 2003, amounted to:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Service Fee
Retained by MFD $395,515 $2,483 $3,686 $-- $213 $3 $--
- -----------------------------------------------------------------------------------------------------------------
Payment of the 0.15% per annum portion of the Class 529A distribution fee that is not currently being charged will
be implemented on such a date as the Trustees of the Trust may determine.
Fees incurred under the distribution plan during the year ended August 31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Total
Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.35% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within, for
class A shares, 12 months following the purchase, and, for Class C and Class
529C shares, the first year from the end of the calendar month of purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B and Class 529B shares in the event of a shareholder redemption within
six years from the end of the calendar month of purchase. MFD receives all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended August 31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred
Sales Charges Imposed $20,143 $2,354,232 $122,896 $-- $--
- --------------------------------------------------------------------------------
The fund has and may from time to time enter into contracts with program
managers and other parties, which administer the tuition programs through
which an investment in the fund's 529 share classes is made. The fund has
entered into an agreement with MFD pursuant to which MFD receives an annual
fee of up to 0.35% from the fund based solely upon the value of the fund's 529
share classes attributable to tuition programs to which MFD or a third party
which contracts with MFD provides administrative services. The current fee has
been established at 0.25% annually of average net assets of the fund's 529
share classes attributable to such programs. The fee may only be increased
with the approval of the board of trustees that oversees the fund. The
services provided by MFD or a third party with which MFD contracts include
recordkeeping and tax reporting and account services, as well as services
designed to maintain the program's compliance with the Internal Revenue Code
and other regulatory requirements.
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
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$3,514,403,906 and $2,088,011,260, 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 $5,124,261,711
--------------------------------------------------------
Gross unrealized appreciation $297,488,044
--------------------------------------------------------
Gross unrealized depreciation (121,115,827)
--------------------------------------------------------
Net unrealized appreciation $176,372,217
--------------------------------------------------------
(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:
Year ended 8/31/03 Year ended 8/31/02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 124,630,755 $2,082,051,438 86,783,511 $1,624,347,088
- -------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 1,432,223 23,884,644 704,960 13,211,291
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (63,302,566) (1,055,785,399) (32,616,595) (604,941,576)
- -------------------------------------------------------------------------------------------------------------
Net increase 62,760,412 $1,050,150,683 54,871,876 $1,032,616,803
- -------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 18,732,927 $310,631,777 30,418,224 $569,221,280
- -------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 331,330 5,479,523 217,608 4,088,491
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (13,374,299) (218,917,180) (13,107,248) (236,271,099)
- -------------------------------------------------------------------------------------------------------------
Net increase 5,689,958 $97,194,120 17,528,584 $337,038,672
- -------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 15,604,268 $260,250,104 15,851,882 $296,164,345
- -------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 147,871 2,447,102 95,529 1,793,214
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (7,256,171) (118,974,937) (7,370,002) (133,292,865)
- -------------------------------------------------------------------------------------------------------------
Net increase 8,495,968 $143,722,269 8,577,409 $164,664,694
- -------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 13,752,753 $232,245,954 2,996,480 $55,745,714
- -------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 124,511 2,096,324 45,094 847,147
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (1,921,607) (32,344,876) (956,480) (17,662,546)
- -------------------------------------------------------------------------------------------------------------
Net increase 11,955,657 $201,997,402 2,085,094 $38,930,315
- -------------------------------------------------------------------------------------------------------------
Period ended 8/31/03*
SHARES AMOUNT
CLASS R SHARES
Shares sold 1,393,305 $23,639,438
- ----------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 2,457 41,829
- ----------------------------------------------------------------------
Shares reacquired (586,270) (9,912,319)
- ----------------------------------------------------------------------
Net increase 809,492 $13,768,948
- ----------------------------------------------------------------------
Year ended 8/31/03 Period ended 8/31/02**
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 44,772 $739,807 597 $10,250
- -------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 287 4,856 -- --
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (784) (13,279) -- --
- -------------------------------------------------------------------------------------------------------------
Net increase 44,275 $731,384 597 $10,250
- -------------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 9,960 $168,230 345 $5,812
- -------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 149 523 -- --
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (336) (5,451) -- --
- -------------------------------------------------------------------------------------------------------------
Net increase 9,773 $163,302 345 $5,812
- -------------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 16,923 $299,704 1,253 $21,450
- -------------------------------------------------------------------------------------------------------------
Shares issued to
shareholders in reinvestment
of distributions 1,590 1,190 -- --
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (45) (741) -- --
- -------------------------------------------------------------------------------------------------------------
Net increase 18,468 $300,153 1,253 $21,450
- -------------------------------------------------------------------------------------------------------------
* Commencement of operations December 31, 2002.
** Commencement of operations July 31, 2002.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million 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. A commitment fee of $29,367 which is based on the average daily
unused portion of the line of credit is included in miscellaneous expense. The
fund had no significant borrowings during the year.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust I and Shareholders of MFS Value Fund:
We have audited the accompanying statement of assets and liabilities of
MFS Value Fund (the Fund) (one of the portfolios constituting MFS Series Trust
I), including the portfolio of investments, as of August 31, 2003, 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 periods indicated therein. 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, 2003, 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
Value Fund at August 31, 2003, 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 its financial highlights for each of the periods indicated
therein, in conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 10, 2003
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of the fund, including
their principal occupations, which, unless specific dates are shown, are of more than five years' duration,
although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer, and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63) Assistant
Chairman Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer, (prior to September 2000); Lexington
STEPHEN E. CAVAN (born 11/06/53) Funds, Treasurer (prior to September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company, Vice
STEPHANIE A. DESISTO (born 10/01/53) President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus Massachusetts Financial Services Company, Senior
Investment Management, Senior Vice President Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Cohn, Sherratt and Smith, and Ms. O'Neill, have served in their capacity as Trustee of the
Trust continuously since originally elected or appointed. Messrs. Ballen, Ives, Perera and Poorvu, and Ms.
Smith, were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke
has served as Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR AUDITORS
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGERS
Steven R. Gorham(1)
Lisa B. Nurme(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
For the year ended August 31, 2003, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 100%.
The fund hereby designates the maximum amount allowable as qualified dividend
income eligible for a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. Complete information will be
reported in conjunction with your 2003 Form 1099-DIV.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.
gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
EIF-ANN-9/03 393M
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/03
MFS(R) STRATEGIC
GROWTH FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) STRATEGIC GROWTH FUND
Seeks capital appreciation.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ----------------------------------------------------
FINANCIAL STATEMENTS 18
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 31
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT 39
- ----------------------------------------------------
TRUSTEES AND OFFICERS 40
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 42
- ----------------------------------------------------
FEDERAL TAX INFORMATION 43
- ----------------------------------------------------
CONTACT INFORMATION 44
- ----------------------------------------------------
ASSET ALLOCATION 45
- -------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
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
MFS Investment Management(R)
September 15, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- --------------------------------------------------------------------------------
MANAGEMENT REVIEW
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
The 12-month period ended August 31, 2003 proved extremely volatile but
rewarding for patient, long-term investors. Nearly all asset classes showed
positive performance for the period, and a second-quarter 2003 rally gave
investors in U.S. stocks their best quarter in many years.
CONTRIBUTORS TO PERFORMANCE
The fund outperformed both its benchmark, the Russell 1000 Growth Index, and
its Lipper large-cap growth peers over the period. Health care, consumer
staples, and leisure were the fund's strongest sectors, relative to its
benchmark. In health care, our emphasis on biotechnology concerns boosted
returns. For example, Genentech shares climbed dramatically following the
release of favorable test results for the company's colon cancer product,
Avastin. This compound may be the first of a new generation of medications
designed to combat cancer by cutting off blood supply to tumors. Genzyme,
another biotech firm, successfully addressed an excess inventory issue
involving its key drug, Renagel. In addition, the company won FDA approval for
two drugs in its development pipeline. Fund results were also helped by our
holding in Forest Laboratories, a pharmaceutical firm whose products include
Lexapro and Celexa for the treatment of depression. Avoiding some disappointing
names in the health care sector - including hospital giants Tenet Healthcare
and HCA - also helped the portfolio's relative performance.
The fund's significant underweighting in the consumer staples sector helped
performance as the market favored stocks seen as less defensive issues.
Especially during the second-quarter 2003 market rally, the fund benefited from
not owning familiar names such as Coca-Cola, Procter & Gamble, and
Anheuser-Busch - stocks that we felt did not fit our aggressive growth strategy
and that, in fact, underperformed over the period.
- -----------------------------------------------
TOP 5 STOCK HOLDINGS
AS OF 8/31/03
MICROSOFT CORP. 4.2%
Computer software and systems company
- -----------------------------------------------
CISCO SYSTEMS, INC. 3.1%
Computer networking firm
- -----------------------------------------------
PFIZER, INC. 2.9%
Pharmaceutical products company
- -----------------------------------------------
WAL-MART STORES, INC. 2.3%
General merchandise retailer
- -----------------------------------------------
VIACOM, INC. 2.0%
Diversified media and entertainment
company
- -----------------------------------------------
The portfolio is actively managed, and current
holdings may be different.
- -----------------------------------------------
Stock selection and an overweighted position among leisure companies also
helped results during the period. Satellite TV broadcaster EchoStar
Communications was our best-performing holding in the sector, as the company
impressively expanded its subscriber base. Our positions in media and
entertainment firms Clear Channel Communications, The Walt Disney Company, and
Viacom benefited from an improving economy and an upturn in advertising
spending. As the travel industry continued to recover and the restaurant
business improved, we also profited from holdings in Starwood Hotels & Resorts
Worldwide and Outback Steakhouse.
In the financial services sector, the portfolio's focus on capital-markets-
sensitive franchises such as Citigroup and Merrill Lynch helped performance as
bond spreads narrowed, trading volumes rose, and security underwriting
activity showed signs of renewed life.
PERFORMANCE DETRACTORS
While technology positions delivered strong absolute returns, portfolio
performance in the sector lagged that of the Russell 1000 Growth Index. Our
underweighted position among electronics makers generally, and Intel
specifically, was chiefly responsible for constraining relative performance.
Worries that weak corporate technology spending and excess capacity would
dampen profits abated during the period, as inventories contracted and certain
product markets, such as laptop PCs, showed surprising strength.
In the business services arena, a number of holdings failed to meet our
expectations over the period. Automatic Data Processing (ADP), for example,
had previously dealt with a weak environment - soft demand for its payroll and
financial services trade processing services - by cutting costs. In March of
2003, however, ADP management signaled that they would add back some
incremental expenses and take some other actions that we felt could dampen
future earnings growth potential. The stock fell on the news of the change in
strategy, and we sold our position. Our holdings in travel reservations firm
Sabre Holdings, which we sold, and financial services transaction processor
BISYS Group also declined in price over the period.
Respectfully,
/s/ S. Irfan Ali
S. Irfan Ali
Portfolio Manager
Note to Shareholders: Portfolio management is also assisted by Peggy W. Adams,
Associate Portfolio Manager. Ms. Adams participates in the research process
and strategy discussions, while the Portfolio Manager maintains overall
responsibility for portfolio construction. The Associate Portfolio Manager
also customizes the portfolio to client objectives and communicates investment
policy, strategy, and tactics.
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. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 8/31/03
- -------------------------------------------------------------------------------
The following information illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including the reinvestment of any
dividends and capital gains distributions. 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. PAST PERFORMANCE IS
NO GUARANTEE OF FUTURE RESULTS. (See Notes to Performance Summary.)
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, 2003. Index information is from January 1,
1996.)
MFS Strategic
Growth Fund - Russell 1000
Class A Growth Index
1/96 $ 9,425 $10,000
8/96 11,433 10,638
8/97 19,772 14,421
8/99 33,727 23,893
8/01 29,190 17,946
8/03 23,403 15,692
TOTAL RETURNS
- ----------------------
Average annual
without sales charge
- ----------------------
Class
Share class inception date 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/1996 18.10% -20.94% 2.34% 12.60%
- ------------------------------------------------------------------------------
B 4/11/1997 17.22% -21.46% 1.69% 11.97%
- ------------------------------------------------------------------------------
C 4/11/1997 17.26% -21.46% 1.69% 12.00%
- ------------------------------------------------------------------------------
I 1/02/1997 18.40% -20.67% 2.72% 12.93%
- ------------------------------------------------------------------------------
J 12/31/1999 17.33% -21.45% 1.88% 12.27%
- ------------------------------------------------------------------------------
R 12/31/2002 17.96% -20.98% 2.32% 12.58%
- ------------------------------------------------------------------------------
529A 7/31/2002 17.75% -21.02% 2.28% 12.56%
- ------------------------------------------------------------------------------
529B 7/31/2002 17.00% -21.20% 2.14% 12.46%
- ------------------------------------------------------------------------------
529C 7/31/2002 16.97% -21.21% 2.14% 12.45%
- ------------------------------------------------------------------------------
Comparative Benchmarks
- ----------------------
Average annual
- ----------------------
- ------------------------------------------------------------------------------
Average large-cap growth fund+ 12.34% -19.98% 0.29% 5.11%
- ------------------------------------------------------------------------------
Russell 1000 Growth Index# 14.08% -21.41% -0.79% 6.05%
- ------------------------------------------------------------------------------
Share class
- ----------------------
Average annual
with sales charge
- ----------------------
- ------------------------------------------------------------------------------
A 11.31% -22.49% 1.14% 11.73%
- ------------------------------------------------------------------------------
B 13.22% -22.14% 1.36% 11.97%
- ------------------------------------------------------------------------------
C 16.26% -21.46% 1.69% 12.00%
- ------------------------------------------------------------------------------
J 13.81% -22.24% 1.26% 11.82%
- ------------------------------------------------------------------------------
529A 10.98% -22.57% 1.08% 11.69%
- ------------------------------------------------------------------------------
529B 13.00% -21.87% 1.83% 12.46%
- ------------------------------------------------------------------------------
529C 15.97% -21.21% 2.14% 12.45%
- ------------------------------------------------------------------------------
I and R class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- ----------------------
Cumulative without
sales charge
- ----------------------
- ------------------------------------------------------------------------------
A 18.10% -50.59% 12.27% 148.31%
- ------------------------------------------------------------------------------
B 17.22% -51.56% 8.72% 137.85%
- ------------------------------------------------------------------------------
C 17.26% -51.55% 8.72% 138.32%
- ------------------------------------------------------------------------------
I 18.40% -50.07% 14.38% 153.82%
- ------------------------------------------------------------------------------
J 17.33% -51.53% 9.74% 142.71%
- ------------------------------------------------------------------------------
R 17.96% -50.65% 12.14% 148.01%
- ------------------------------------------------------------------------------
529A 17.75% -50.74% 11.93% 147.56%
- ------------------------------------------------------------------------------
529B 17.00% -51.08% 11.17% 145.87%
- ------------------------------------------------------------------------------
529C 16.97% -51.09% 11.14% 145.81%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 2003. Index information is from January
1, 1996.
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
RUSSELL 1000 GROWTH INDEX - The Russell 1000 Growth Index measures the
performance of large-cap U.S. growth stocks.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results, including sales charge, reflects the deduction of
the maximum 5.75% sales charge. Class B and 529B results, including sales
charge, reflects the deduction of the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C and 529C
results, including sales charge, redeemed within one year from the end of the
calendar month of purchase reflects the deduction of the 1% CDSC. Class I
shares have no sales charges and are available only to certain investors.
Class J results, including sales charge, reflects the deduction of the maximum
3% sales charge and are available only to residents of Japan. Class R shares
have no sales charges and are available only to certain retirement plans.
Class 529A, 529B, and 529C shares are only available in conjunction with
qualified tuition programs, such as the MFS 529 Savings Plan.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
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 and financial statements for details. All
results are historical and assume the reinvestment of dividends and capital
gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- -------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 8/31/03
- -------------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It's divided by
broad-based asset classes.
Stocks - 98.7%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - 94.8%
- -----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.6%
- -----------------------------------------------------------------------------------------------------
Liz Claiborne, Inc. 80,600 $2,778,282
- -----------------------------------------------------------------------------------------------------
Reebok International Ltd. 168,600 5,639,670
- -----------------------------------------------------------------------------------------------------
$8,417,952
- -----------------------------------------------------------------------------------------------------
Banks & Credit Companies - 5.8%
- -----------------------------------------------------------------------------------------------------
Bank of New York Co., Inc. 404,000 $11,885,680
- -----------------------------------------------------------------------------------------------------
Citigroup, Inc. 636,057 27,573,071
- -----------------------------------------------------------------------------------------------------
Fannie Mae 186,500 12,083,335
- -----------------------------------------------------------------------------------------------------
MBNA Corp. 450,500 10,514,670
- -----------------------------------------------------------------------------------------------------
Mellon Financial Corp. 256,600 8,044,410
- -----------------------------------------------------------------------------------------------------
Northern Trust Corp. 103,500 4,371,840
- -----------------------------------------------------------------------------------------------------
SLM Corp. 308,700 12,403,566
- -----------------------------------------------------------------------------------------------------
$86,876,572
- -----------------------------------------------------------------------------------------------------
Biotechnology - 3.8%
- -----------------------------------------------------------------------------------------------------
Amgen, Inc.* 423,200 $27,888,880
- -----------------------------------------------------------------------------------------------------
Genentech, Inc.* 242,000 19,214,800
- -----------------------------------------------------------------------------------------------------
Genzyme Corp.* 212,600 10,024,090
- -----------------------------------------------------------------------------------------------------
$57,127,770
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 8.0%
- -----------------------------------------------------------------------------------------------------
AOL Time Warner, Inc.* 1,309,100 $21,416,876
- -----------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.* 486,900 21,968,928
- -----------------------------------------------------------------------------------------------------
Comcast Corp., "Special A"* 610,100 17,302,436
- -----------------------------------------------------------------------------------------------------
Cox Communications, Inc., "A"* 308,900 10,107,208
- -----------------------------------------------------------------------------------------------------
EchoStar Communications Corp., "A"* 393,735 14,528,821
- -----------------------------------------------------------------------------------------------------
Entercom Communications Corp., "A"* 107,000 5,385,310
- -----------------------------------------------------------------------------------------------------
Univision Communications, Inc., "A"* 345,800 12,964,042
- -----------------------------------------------------------------------------------------------------
Westwood One, Inc.* 485,400 15,581,340
- -----------------------------------------------------------------------------------------------------
$119,254,961
- -----------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.2%
- -----------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 234,300 $20,733,207
- -----------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 496,300 26,691,014
- -----------------------------------------------------------------------------------------------------
$47,424,221
- -----------------------------------------------------------------------------------------------------
Business Services - 3.4%
- -----------------------------------------------------------------------------------------------------
BISYS Group, Inc.* 934,760 $17,152,846
- -----------------------------------------------------------------------------------------------------
DST Systems, Inc.* 236,500 9,365,400
- -----------------------------------------------------------------------------------------------------
First Data Corp. 219,200 8,417,280
- -----------------------------------------------------------------------------------------------------
SunGard Data Systems, Inc.* 560,800 15,814,560
- -----------------------------------------------------------------------------------------------------
$50,750,086
- -----------------------------------------------------------------------------------------------------
Computer Software - 10.3%
- -----------------------------------------------------------------------------------------------------
Amdocs Ltd.* 130,700 $2,925,066
- -----------------------------------------------------------------------------------------------------
BEA Systems, Inc.* 451,300 6,115,115
- -----------------------------------------------------------------------------------------------------
Getty Images, Inc.* 93,100 3,798,480
- -----------------------------------------------------------------------------------------------------
Mercury Interactive Corp.* 326,700 14,338,863
- -----------------------------------------------------------------------------------------------------
Microsoft Corp. 2,310,000 61,261,200
- -----------------------------------------------------------------------------------------------------
Networks Associates, Inc.* 1,173,200 16,330,944
- -----------------------------------------------------------------------------------------------------
Oracle Corp.* 1,599,000 20,435,220
- -----------------------------------------------------------------------------------------------------
Peoplesoft, Inc.* 168,900 3,057,090
- -----------------------------------------------------------------------------------------------------
VERITAS Software Corp.* 722,679 24,917,972
- -----------------------------------------------------------------------------------------------------
$153,179,950
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.2%
- -----------------------------------------------------------------------------------------------------
BearingPoint, Inc.* 97,400 $798,680
- -----------------------------------------------------------------------------------------------------
International Business Machines Corp. 360,400 29,556,404
- -----------------------------------------------------------------------------------------------------
Manhattan Associates, Inc.* 100,100 2,965,963
- -----------------------------------------------------------------------------------------------------
$33,321,047
- -----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.2%
- -----------------------------------------------------------------------------------------------------
Avon Products, Inc. 266,900 $17,108,290
- -----------------------------------------------------------------------------------------------------
Electrical Equipment - 3.4%
- -----------------------------------------------------------------------------------------------------
Danaher Corp. 76,400 $5,901,900
- -----------------------------------------------------------------------------------------------------
General Electric Co. 883,600 26,128,052
- -----------------------------------------------------------------------------------------------------
Tyco International Ltd. 913,104 18,791,680
- -----------------------------------------------------------------------------------------------------
$50,821,632
- -----------------------------------------------------------------------------------------------------
Electronics - 7.0%
- -----------------------------------------------------------------------------------------------------
Analog Devices, Inc.* 644,600 $26,428,600
- -----------------------------------------------------------------------------------------------------
Linear Technology Corp. 347,900 14,340,438
- -----------------------------------------------------------------------------------------------------
Maxim Integrated Products, Inc. 299,100 13,432,581
- -----------------------------------------------------------------------------------------------------
Microchip Technology, Inc. 429,200 12,021,892
- -----------------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 202,400 8,087,904
- -----------------------------------------------------------------------------------------------------
Texas Instruments, Inc. 596,600 14,228,910
- -----------------------------------------------------------------------------------------------------
Xilinx, Inc.* 528,800 16,308,192
- -----------------------------------------------------------------------------------------------------
$104,848,517
- -----------------------------------------------------------------------------------------------------
Entertainment - 3.6%
- -----------------------------------------------------------------------------------------------------
InterActive Corp.* 545,500 $20,188,955
- -----------------------------------------------------------------------------------------------------
Viacom, Inc., "B" 661,213 29,754,585
- -----------------------------------------------------------------------------------------------------
Walt Disney Co. 171,700 3,519,850
- -----------------------------------------------------------------------------------------------------
$53,463,390
- -----------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.0%
- -----------------------------------------------------------------------------------------------------
Walgreen Co. 468,500 $15,259,045
- -----------------------------------------------------------------------------------------------------
Food & Non Alcoholic Beverages - 1.0%
- -----------------------------------------------------------------------------------------------------
PepsiCo, Inc. 336,500 $14,987,710
- -----------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.0%
- -----------------------------------------------------------------------------------------------------
Hilton Hotels Corp. 372,700 $5,694,856
- -----------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 260,400 8,809,332
- -----------------------------------------------------------------------------------------------------
$14,504,188
- -----------------------------------------------------------------------------------------------------
General Merchandise - 5.5%
- -----------------------------------------------------------------------------------------------------
Kohl's Corp.* 394,000 $24,920,500
- -----------------------------------------------------------------------------------------------------
Target Corp. 555,500 22,553,300
- -----------------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 576,876 34,133,753
- -----------------------------------------------------------------------------------------------------
$81,607,553
- -----------------------------------------------------------------------------------------------------
Insurance - 5.7%
- -----------------------------------------------------------------------------------------------------
American International Group, Inc. 286,489 $17,066,150
- -----------------------------------------------------------------------------------------------------
Chubb Corp. 195,700 13,295,858
- -----------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. 342,560 18,231,043
- -----------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 293,400 14,670,000
- -----------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., "A" 1,049,478 16,151,466
- -----------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., "B" 42,434 657,303
- -----------------------------------------------------------------------------------------------------
UnumProvident Corp. 392,440 5,533,404
- -----------------------------------------------------------------------------------------------------
$85,605,224
- -----------------------------------------------------------------------------------------------------
Medical Equipment - 1.0%
- -----------------------------------------------------------------------------------------------------
Medtronic, Inc. 299,500 $14,849,210
- -----------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.5%
- -----------------------------------------------------------------------------------------------------
Avid Technology, Inc.* 110,400 $5,481,360
- -----------------------------------------------------------------------------------------------------
Dell, Inc.* 528,000 17,228,640
- -----------------------------------------------------------------------------------------------------
$22,710,000
- -----------------------------------------------------------------------------------------------------
Pharmaceuticals - 8.2%
- -----------------------------------------------------------------------------------------------------
Abbott Laboratories, Inc. 457,800 $18,449,340
- -----------------------------------------------------------------------------------------------------
Forest Laboratories, Inc.* 308,400 14,494,800
- -----------------------------------------------------------------------------------------------------
Johnson & Johnson Co. 342,000 16,956,360
- -----------------------------------------------------------------------------------------------------
Pfizer, Inc. 1,442,660 43,164,387
- -----------------------------------------------------------------------------------------------------
Schering Plough Corp. 824,900 12,530,231
- -----------------------------------------------------------------------------------------------------
Wyeth 397,868 17,048,644
- -----------------------------------------------------------------------------------------------------
$122,643,762
- -----------------------------------------------------------------------------------------------------
Printing & Publishing - 2.8%
- -----------------------------------------------------------------------------------------------------
Lamar Advertising Co., "A"* 412,450 $13,779,955
- -----------------------------------------------------------------------------------------------------
New York Times Co., "A" 339,000 15,048,210
- -----------------------------------------------------------------------------------------------------
Tribune Co. 280,100 12,954,625
- -----------------------------------------------------------------------------------------------------
$41,782,790
- -----------------------------------------------------------------------------------------------------
Restaurants - 3.1%
- -----------------------------------------------------------------------------------------------------
ARAMARK Corp.* 151,560 $3,789,000
- -----------------------------------------------------------------------------------------------------
Brinker International, Inc.* 386,700 13,225,140
- -----------------------------------------------------------------------------------------------------
McDonald's Corp. 493,600 11,066,512
- -----------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 384,800 14,872,520
- -----------------------------------------------------------------------------------------------------
Starbucks Corp.* 95,200 2,707,488
- -----------------------------------------------------------------------------------------------------
$45,660,660
- -----------------------------------------------------------------------------------------------------
Specialty Stores - 4.9%
- -----------------------------------------------------------------------------------------------------
Chico's FAS, Inc.* 38,100 $1,237,869
- -----------------------------------------------------------------------------------------------------
Home Depot, Inc. 596,500 19,183,440
- -----------------------------------------------------------------------------------------------------
Pier 1 Imports, Inc. 652,400 13,419,868
- -----------------------------------------------------------------------------------------------------
Staples, Inc.* 514,100 12,662,283
- -----------------------------------------------------------------------------------------------------
TJX Cos., Inc. 634,700 13,747,602
- -----------------------------------------------------------------------------------------------------
Williams-Sonoma, Inc.* 419,700 12,847,017
- -----------------------------------------------------------------------------------------------------
$73,098,079
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 3.8%
- -----------------------------------------------------------------------------------------------------
ADTRAN, Inc. 203,600 $11,157,280
- -----------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 2,357,900 45,153,785
- -----------------------------------------------------------------------------------------------------
$56,311,065
- -----------------------------------------------------------------------------------------------------
Telephone Services
- -----------------------------------------------------------------------------------------------------
Winstar Communications, Inc.* 281,200 $281
- -----------------------------------------------------------------------------------------------------
Trucking - 1.0%
- -----------------------------------------------------------------------------------------------------
Fedex Corp. 67,400 $4,522,540
- -----------------------------------------------------------------------------------------------------
United Parcel Service, Inc. 156,700 9,834,492
- -----------------------------------------------------------------------------------------------------
$14,357,032
- -----------------------------------------------------------------------------------------------------
Wireless Communications - 1.8%
- -----------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc.* 1,799,100 $15,508,242
- -----------------------------------------------------------------------------------------------------
Sprint Corp. (PCS Group)* 2,063,300 10,708,527
- -----------------------------------------------------------------------------------------------------
$26,216,769
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $1,412,187,756
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 3.9%
- -----------------------------------------------------------------------------------------------------
Bermuda - 2.0%
- -----------------------------------------------------------------------------------------------------
Ace Ltd. (Insurance) 481,600 $15,507,520
- -----------------------------------------------------------------------------------------------------
XL Capital Ltd. (Insurance) 193,400 14,650,050
- -----------------------------------------------------------------------------------------------------
$30,157,570
- -----------------------------------------------------------------------------------------------------
Canada - 0.7%
- -----------------------------------------------------------------------------------------------------
Nortel Networks Corp. (Telecommunications - Wireline)* 3,012,700 $9,791,275
- -----------------------------------------------------------------------------------------------------
Finland - 0.7%
- -----------------------------------------------------------------------------------------------------
Nokia Corp., ADR (Telecommunications - Wireline) 691,800 $11,269,422
- -----------------------------------------------------------------------------------------------------
Netherlands - 0.2%
- -----------------------------------------------------------------------------------------------------
STMicroelectronics N.V. (Electronics) 124,340 $3,101,040
- -----------------------------------------------------------------------------------------------------
United Kingdom - 0.3%
- -----------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR (Wireless Communications) 219,833 $4,022,944
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $58,342,251
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,495,538,540) $1,470,530,007
- -----------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.0%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
DaimlerChrysler N.A., due 9/15/03 $3,000 $2,998,565
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 9/02/03 10,556 10,555,754
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 9/24/03 5,000 4,996,805
- -----------------------------------------------------------------------------------------------------
Ford Motor Credit Corp., due 9/12/03 3,500 3,498,685
- -----------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., due 9/02/03 7,200 7,199,750
- -----------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $29,249,559
- -----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 4.9%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Amortized Cost 73,691,982 $73,691,982
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,598,480,081) $1,573,471,548
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (5.6)% (83,845,518)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,489,626,030
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 8/31/03
ASSETS
Investments, at value, including $71,763,837 of
securities on loan (identified cost, $1,598,480,081) $1,573,471,548
- -----------------------------------------------------------------------------------------------------
Cash 185
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 7,292,192
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 2,434,045
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 918,674
- -----------------------------------------------------------------------------------------------------
Other assets 890
- -----------------------------------------------------------------------------------------------------
Total assets $1,584,117,534
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $17,206,534
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 3,033,867
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 73,691,982
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 90,499
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 13,273
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 71,991
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 383,358
- -----------------------------------------------------------------------------------------------------
Total liabilities $94,491,504
- -----------------------------------------------------------------------------------------------------
Net assets $1,489,626,030
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $2,794,075,836
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (25,007,172)
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (1,277,372,227)
- -----------------------------------------------------------------------------------------------------
Accumulated net investment loss (2,070,407)
- -----------------------------------------------------------------------------------------------------
Total $1,489,626,030
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 91,118,813
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
Net assets $673,767,102
- -----------------------------------------------------------------------------------------------------
Shares outstanding 40,671,769
- -----------------------------------------------------------------------------------------------------
Net asset value per share $16.57
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 X $16.57) $17.58
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $505,090,472
- -----------------------------------------------------------------------------------------------------
Shares outstanding 31,563,105
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.00
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $141,307,485
- -----------------------------------------------------------------------------------------------------
Shares outstanding 8,813,739
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.03
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $163,758,129
- -----------------------------------------------------------------------------------------------------
Shares outstanding 9,712,775
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.86
- -----------------------------------------------------------------------------------------------------
Class J shares
Net assets $5,118,926
- -----------------------------------------------------------------------------------------------------
Shares outstanding 321,816
- -----------------------------------------------------------------------------------------------------
Net asset value per share $15.91
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/97 X $15.91) $16.40
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R shares
Net assets $221,167
- -----------------------------------------------------------------------------------------------------
Shares outstanding 13,367
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.55
- -----------------------------------------------------------------------------------------------------
Class 529A shares
Net assets $225,377
- -----------------------------------------------------------------------------------------------------
Shares outstanding 13,644
- -----------------------------------------------------------------------------------------------------
Net asset value per share $16.52
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 X 16.52) $17.53
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $79,052
- -----------------------------------------------------------------------------------------------------
Shares outstanding 4,950
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.97
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $58,320
- -----------------------------------------------------------------------------------------------------
Shares outstanding 3,648
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.99
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares are reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529A, Class 529B, and Class 529C shares.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
FOR YEAR ENDED 8/31/03
NET INVESTMENT LOSS
Income
- -----------------------------------------------------------------------------------------------------
Dividends $11,561,948
- -----------------------------------------------------------------------------------------------------
Interest 1,112,424
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (22,279)
- -----------------------------------------------------------------------------------------------------
Total investment income $12,652,093
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $10,112,920
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 56,480
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 1,407,231
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 2,303,208
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 4,719,395
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 1,358,319
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class J) 46,772
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R) 131
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 340
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 365
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 307
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 243
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 91
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 77
- -----------------------------------------------------------------------------------------------------
Administrative fee 130,984
- -----------------------------------------------------------------------------------------------------
Custodian fee 401,586
- -----------------------------------------------------------------------------------------------------
Printing 162,749
- -----------------------------------------------------------------------------------------------------
Postage 249,297
- -----------------------------------------------------------------------------------------------------
Auditing fees 33,076
- -----------------------------------------------------------------------------------------------------
Legal fees 15,308
- -----------------------------------------------------------------------------------------------------
Miscellaneous 1,708,622
- -----------------------------------------------------------------------------------------------------
Total expenses $22,707,501
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (114,915)
- -----------------------------------------------------------------------------------------------------
Net expenses $22,592,586
- -----------------------------------------------------------------------------------------------------
Net investment loss $(9,940,493)
- -----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $(193,503,054)
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions 8,375
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions $(193,494,679)
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $423,557,676
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies (13)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $423,557,663
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency $230,062,984
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $220,122,491
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
FOR YEARS ENDED 8/31 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment loss $(9,940,493) $(20,345,724)
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (193,494,679) (354,412,084)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 423,557,663 (204,204,581)
- ----------------------------------------------------------- ------------- -------------
Increase (decrease) in net assets from operations $220,122,491 $(578,962,389)
- ----------------------------------------------------------- ------------- -------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
In excess of net realized gain on investments and
foreign currency transactions
- -----------------------------------------------------------------------------------------------------
Class A $-- $(5,134,784)
- -----------------------------------------------------------------------------------------------------
Class B -- (3,629,998)
- -----------------------------------------------------------------------------------------------------
Class C -- (1,173,523)
- -----------------------------------------------------------------------------------------------------
Class I -- (134,457)
- -----------------------------------------------------------------------------------------------------
Class J -- (28,195)
- ----------------------------------------------------------- ------------- -------------
Total distributions declared to shareholders $-- $(10,100,957)
- ----------------------------------------------------------- ------------- -------------
Net decrease in net assets from fund share transactions $(131,989,369) $(119,514,144)
- ----------------------------------------------------------- ------------- -------------
Total increase (decrease) in net assets $88,133,122 $(708,577,490)
- ----------------------------------------------------------- ------------- -------------
NET ASSETS
At beginning of period $1,401,492,908 $2,110,070,398
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $2,070,407 and $1,540,401, respectively) $1,489,626,030 $1,401,492,908
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years (or, if
shorter, the period of the fund's operation). Certain information reflects financial results for a single fund share. The total
returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund (assuming
reinvestment of all distributions). This information has been audited by the fund's independent auditors, whose report,
together with the fund's financial statements, are included in this report.
FOR YEARS ENDED 8/31
CLASS A 2003 2002 2001 2000 1999
Net asset value, beginning of period $14.03 $19.22 $39.19 $28.18 $18.79
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.07) $(0.13) $(0.17) $(0.28) $(0.18)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 2.61 (4.97) (15.53) 13.13 10.29
- ------------------------------------------ ------- ------- -------- -------- -------
Total from investment operations $2.54 $(5.10) $(15.70) $12.85 $10.11
- ------------------------------------------ ------- ------- -------- -------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments
and foreign currency transactions $-- $-- $(4.08) $(1.84) $(0.72)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- (0.09) (0.19) -- --
- ------------------------------------------ ------- ------- -------- -------- -------
Total distributions declared to
shareholders $-- $(0.09) $(4.27) $(1.84) $(0.72)
- ------------------------------------------ ------- ------- -------- -------- -------
Net asset value, end of period $16.57 $14.03 $19.22 $39.19 $28.18
- ------------------------------------------ ------- ------- -------- -------- -------
Total return (%)(+) 18.10* (26.70) (42.93) 47.18 54.40
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
Expenses## 1.41 1.45 1.37 1.32 1.38
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.46) (0.74) (0.67) (0.78) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 116 104 104 112
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $673,767 $731,283 $984,529 $1,356,313 $512,994
- ------------------------------------------------------------------------------------------------------------------------------
* The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as a
realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value
per share, the total return for the year ended August 31, 2003 would have been 18.02%.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) 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.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS B 2003 2002 2001 2000 1999
Net asset value, beginning of period $13.65 $18.80 $38.45 $27.75 $18.59
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.16) $(0.24) $(0.33) $(0.49) $(0.35)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 2.51 (4.82) (15.23) 12.92 10.18
- ------------------------------------------ ------- ------- -------- -------- -------
Total from investment operations $2.35 $(5.06) $(15.56) $12.43 $9.83
- ------------------------------------------ ------- ------- -------- -------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDER
From net realized gain on investments
and foreign currency transactions $-- $-- $(3.91) $(1.73) $(0.67)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- (0.09) (0.18) -- --
- ------------------------------------------ ------- ------- -------- -------- -------
Total distributions declared to
shareholders $-- $(0.09) $(4.09) $(1.73) $(0.67)
- ------------------------------------------ ------- ------- -------- -------- -------
Net asset value, end of period $16.00 $13.65 $18.80 $38.45 $27.75
- ------------------------------------------ ------- ------- -------- -------- -------
Total return (%) 17.22* (27.08) (43.32) 46.23 53.47
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.06 2.10 2.02 1.97 2.03
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.12) (1.39) (1.32) (1.43) (1.34)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 116 104 104 112
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $505,090 $490,326 $820,848 $1,419,290 $656,217
- ------------------------------------------------------------------------------------------------------------------------------
* The fund's total return calculation includes a payment received from a non- recurring litigation settlement recorded as a
realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value
per share, the total return for the year ended August 31, 2003 would have been 17.13%.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS C 2003 2002 2001 2000 1999
Net asset value, beginning of period $13.67 $18.84 $38.54 $27.81 $18.63
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.16) $(0.24) $(0.34) $(0.49) $(0.35)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 2.52 (4.84) (15.25) 12.96 10.20
- ----------------------------------------- ------- ------- -------- -------- -------
Total from investment operations $2.36 $(5.08) $(15.59) $12.47 $9.85
- ----------------------------------------- ------- ------- -------- -------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDER
From net realized gain on investments and
foreign currency transactions $-- $-- $(3.93) $(1.74) $(0.67)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- (0.09) (0.18) -- --
- ----------------------------------------- ------- ------- -------- -------- -------
Total distributions declared to
shareholders $-- $(0.09) $(4.11) $(1.74) $(0.67)
- ----------------------------------------- ------- ------- -------- -------- -------
Net asset value, end of period $16.03 $13.67 $18.84 $38.54 $27.81
- ----------------------------------------- ------- ------- -------- -------- -------
Total return (%) 17.26* (27.13) (43.29) 46.27 53.40
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.06 2.10 2.02 1.97 2.03
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.12) (1.39) (1.32) (1.43) (1.34)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 116 104 104 112
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $141,307 $148,930 $270,903 $450,352 $185,784
- ------------------------------------------------------------------------------------------------------------------------------
* The fund's total return calculation includes a payment received from a non- recurring litigation settlement recorded as a
realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value
per share, the total return for the year ended August 31, 2003 would have been 17.18%.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS I 2003 2002 2001 2000 1999
Net asset value, beginning of period $14.24 $19.41 $39.53 $28.36 $18.85
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.01) $(0.07) $(0.08) $(0.15) $(0.08)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 2.63 (5.01) (15.68) 13.22 10.34
- ----------------------------------------- ------- ------- -------- -------- -------
Total from investment operations $2.62 $(5.08) $(15.76) $13.07 $10.26
- ----------------------------------------- ------- ------- -------- -------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDER
From net realized gain on investments and
foreign currency transactions $-- $-- $(4.17) $(1.90) $(0.75)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- (0.09) (0.19) -- --
- ----------------------------------------- ------- ------- -------- -------- -------
Total distributions declared to
shareholders $-- $(0.09) $(4.36) $(1.90) $(0.75)
- ----------------------------------------- ------- ------- -------- -------- -------
Net asset value, end of period $16.86 $14.24 $19.41 $39.53 $28.36
- ----------------------------------------- ------- ------- -------- -------- -------
Total return (%) 18.40* (26.37) (42.73) 47.73 55.08
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.06 1.10 1.02 0.97 1.03
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.10) (0.39) (0.32) (0.43) (0.34)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 116 104 104 112
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $163,758 $26,193 $28,455 $41,292 $24,849
- ------------------------------------------------------------------------------------------------------------------------------
* The fund's total return calculation includes a payment received from a non- recurring litigation settlement recorded as a
realized gain in the Statement of Operation. Excluding the effect of this payment from the fund's ending net asset value
per share, the total return for the year ended August 31, 2003 would have been 18.31%.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
PERIOD ENDED
CLASS J 2003 2002 2001 8/31/00*
Net asset value, beginning of period $13.56 $18.69 $38.46 $34.29
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.16) $(0.24) $(0.34) $(0.37)
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 2.51 (4.80) (15.19) 4.54
- ------------------------------------------------- ------- ------- -------- --------
Total from investment operations $2.35 $(5.04) $(15.53) $4.17
- ------------------------------------------------- ------- ------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments and
foreign currency transactions $-- $-- $(4.06) $--
- ------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
and foreign currency transactions -- (0.09) (0.18) --
- ------------------------------------------------- ------- ------- -------- --------
Total distributions declared to shareholders $-- $(0.09) $(4.24) $--
- ------------------------------------------------- ------- ------- -------- --------
Net asset value, end of period $15.91 $13.56 $18.69 $13.46
- ------------------------------------------------- ------- ------- -------- --------
Total return (%)(+) 17.33** (27.13) (43.31) 46.55++
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 2.06 2.10 2.02 1.97+
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.12) (1.39) (1.32) (1.43)+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 116 104 104
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $5,119 $4,744 $6,003 $8,551
- ------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class J shares, December 31, 1999, through August 31, 2000.
** The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as a
realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value
per share, the total return for the year ended August 31, 2003 would have been 17.24%.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class J 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.
Financial Highlights - continued
FOR PERIOD ENDED 8/31
CLASS R 2003*
Net asset value, beginning of period $13.94
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.06)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 2.67
- --------------------------------------------------------------- --------
Total from investment operations $2.61
- --------------------------------------------------------------- --------
Net asset value, end of period $16.55
- --------------------------------------------------------------- --------
Total return (%) 18.72++**
- --------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 1.60+
- --------------------------------------------------------------------------------
Net investment loss (0.60)+
- --------------------------------------------------------------------------------
Portfolio turnover 72
- --------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $221
- --------------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002,
through August 31, 2003.
** The fund's total return calculation includes a payment received from a
non-recurring litigation settlement recorded as a realized gain in the
Statement of Operations. Excluding the effect of this payment from the
fund's ending net asset value per share, the total return for the period
ended August 31, 2003 would have been 18.64%.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
YEAR PERIOD YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
8/31/03 8/31/02* 8/31/03 8/31/02* 8/31/03 8/31/02*
- -------------------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Net asset value, beginning of period $14.03 $13.88 $13.65 $13.51 $13.67 $13.53
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.10) $(0.01) $(0.19) $(0.02) $(0.19) $(0.02)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments and foreign currency 2.59 0.16 2.51 0.16 2.51 0.16
- ------------------------------------ ------- ------ ------ ------ ------ ------
Total from investment operations $2.49 $0.15 $2.32 $0.14 $2.32 $0.14
- ------------------------------------ ------- ------ ------ ------ ------ ------
Net asset value, end of period $16.52 $14.03 $15.97 $13.65 $15.99 $13.67
- ------------------------------------ ------- ------ ------ ------ ------ ------
Total return (%) 17.75** 1.08++ 17.00** 1.04++ 16.97** 1.04++
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.67 1.70+ 2.33 2.35+ 2.30 2.35+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.69) (0.74)+ (1.37) (1.39)+ (1.35) (1.38)+
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 116 72 116 72 116
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $225 $5 $79 $5 $58 $5
- -------------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529 shares, July 31, 2002, through August 31, 2002.
** The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as a
realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value
per share, the total return for the year ended August 31, 2003 would have been 17.66%, 16.91%, and 16.88% for Class 529A,
Class 529B, and Class 529C, respectively.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Strategic Growth 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
accounting principles generally accepted in the United States of America
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 in the fund's portfolio for which
market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Short-term obligations in the fund's portfolio
are valued at amortized cost, which constitutes fair value as determined by
the Board of Trustees. Short-term obligations with a remaining maturity in
excess of 60 days will be valued upon dealer-supplied valuations. Portfolio
investments for which market quotations are not readily available, or whose
values have been materially affected by events occurring after the close of
their primary markets, are valued at fair value as determined in good faith by
or at the direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize
a joint trading account for the purpose of entering into one or more
repurchase agreements.
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 TRUSTEE COMPENSATION - Under a Deferred Compensation Plan (the Plan)
independent Trustees may elect to defer receipt of all or a portion of their
annual compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or other MFS funds selected by
the Trustee. Deferred amounts represent an unsecured obligation of the fund
until distributed in accordance with the Plan.
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 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.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with generally accepted accounting principles. All discount is
accreted for 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. During the period, the fund's custodian fees were reduced by $16,238
under this arrangement. The fund has entered into a directed brokerage
agreement, under which the broker will credit the fund a portion of the
commissions generated, to offset certain expenses of the fund. For the period,
the fund's other expenses were reduced by $98,677 under this agreement. These
amounts are 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. Common types of book and tax
differences that could occur include differences in accounting for currency
transactions, real estate investment trusts, defaulted bonds, and capital
losses.
The tax character of distributions declared for the years ended August 31,
2003
and August 31, 2002 was as follows:
8/31/03 8/31/02
Distributions declared from long-term capital gain $-- $10,100,957
- -------------------------------------------------------------------------------
During the year ended August 31, 2003, accumulated net investment loss
decreased by $9,410,487, accumulated net realized loss on investments and
foreign currency transactions increased by $8,375, and paid-in capital
decreased by $9,402,112 due to differences between book and tax accounting for
currency transactions and net operating losses. This change had no effect on
the net assets or net asset value per share.
As of August 31, 2003, the components of accumulated losses on a tax basis
were as follows:
Capital loss carryforward $(1,127,598,053)
-------------------------------------------------------------
Unrealized depreciation (37,942,452)
-------------------------------------------------------------
Post October Capital loss deferral (128,838,894)
-------------------------------------------------------------
Other temporary differences (10,070,407)
-------------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on August 31, 2010, ($827,855,260)
and August 31, 2011 ($299,742,793).
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates are
generally due to differences in separate class expenses. Class B and Class 529B
shares will convert to Class A and Class 529A shares, respectively
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 0.75%
of the fund's average daily net assets.
The fund pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and 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). On January
1, 2002, the Trustees terminated the Independent Trustee unfunded defined
benefit plan for active Trustees and converted it to an unfunded retirement
benefit deferral plan for active Trustees. Under the new plan, the unfunded
pension liability was converted into an equivalent value of notional shares of
the fund that will fluctuate with the performance of the fund. Included in
Trustees' compensation is a net decrease of $2,501 as a result of the change in
the fund's pension liability under this plan and a pension expense of $2,544
for inactive trustees for the year ended August 31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
at the following annual percentages of the fund's average daily net assets:
First $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
$90,750 and $430 for the year ended August 31, 2003, as its portion of the
sales charge on sales of Class A and Class 529A shares of the fund,
respectively.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class J, Class R, Class 529A, Class 529B and Class 529C 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 an annual
percentage of its average daily net assets attributable to certain share
classes 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
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A CLASS B CLASS C CLASS J CLASS R CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.10% 0.75% 0.75% 0.75% 0.25% 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 1.00% 0.50% 0.50% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the year ended August 31, 2003,
amounted to:
CLASS A CLASS B CLASS C CLASS J CLASS R CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained
by MFD $45,512 $6,626 $6,047 $-- $-- $64 $3 $--
- -----------------------------------------------------------------------------------------------------------------------------
Payment of the 0.15% per annum portion of the Class 529A distribution fee that is not currently being charged will be
implemented on such date as the Trustees of the trust may determine. Fees incurred under the distribution plan during the year
ended August 31, 2003, were as follows:
Fees incurred under the distribution plan during the year ended August 31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS J CLASS R CLASS 529A CLASS 529B CLASS 529C
Total Distributi on Plan 0.35% 1.00% 1.00% 1.00% 0.50% 0.35% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------------------
Class J shares are available for distribution through Monex, Inc. ("Monex")
and Citicorp Securities (Japan) Ltd. ("Citicorp") and their network of
financial intermediaries. Monex also serves as the fund's Agent Securities
Company in Japan, and in that capacity represents the fund before Japanese
regulatory authorities. MFD will pay to Monex and Citicorp all of the service
fee and a portion of the distribution fee attributable to Class J shares. Out
of the distribution fee, MFD will pay to Monex and Citicorp 0.575% per annum
of average daily net assets attributable to Class J shares. A portion of the
distribution fee equal to 0.05% per annum of the fund's average daily net
assets attributable to Class J shares is paid to Monex to cover its service as
the fund's Agent Securities Company. MFD retains the remaining 0.125%.
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within, for
class A shares, 12 months following the purchase, and, for Class C and Class
529C shares, the first year from the end of the calendar month of purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B and Class 529B shares in the event of a shareholder redemption within
six years from the end of the calendar month of purchase. MFD receives all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended August 31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred
Sales Charges Imposed $7,904 $1,154,580 $19,707 $-- $--
- --------------------------------------------------------------------------------
The fund has and may from time to time enter into contracts with program
managers and other parties which administer the tuition programs through which
an investment in the fund's 529 share classes is made. The fund has entered
into an agreement with MFD pursuant to which MFD receives an annual fee of up
to 0.25% from the fund based solely upon the value of the fund's 529 share
classes attributable to tuition programs to which MFD or a third party which
contracts with MFD provides administrative services. The current fee has been
established at 0.25% annually of average net assets of the fund's 529 share
classes attributable to such programs. The fee may only be increased with the
approval of the board of trustees that oversees the fund. The services
provided by MFD or a third party with which MFD contracts include
recordkeeping and tax reporting and account services, as well as services
designed to maintain the program's compliance with the Internal Revenue Code
and other regulatory requirements.
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
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$937,938,042 and $1,058,875,560, 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 $1,611,415,361
----------------------------------------------------------
Gross unrealized depreciation $(138,455,308)
----------------------------------------------------------
Gross unrealized appreciation 100,511,495
----------------------------------------------------------
Net unrealized depreciation $(37,943,813)
----------------------------------------------------------
(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:
Year ended 8/31/03 Year ended 8/31/02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 42,067,436 $608,306,358 35,212,674 $619,651,922
- -------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 195,640 3,652,199
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (53,503,806) (772,007,915) (34,516,501) (574,969,713)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) (11,436,370) $(163,701,557) 891,813 $48,334,408
- -------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 4,961,087 $69,388,591 6,038,332 $105,754,339
- -------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 181,316 3,296,399
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (9,331,086) (128,196,184) (13,925,881) (228,513,868)
- -------------------------------------------------------------------------------------------------------------
Net decrease (4,369,999) $(58,807,593) (7,706,233) $(119,463,130)
- -------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,052,437 $14,991,019 2,391,602 $42,193,783
- -------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 53,920 982,704
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (3,132,660) (43,273,762) (5,928,092) (97,647,804)
- -------------------------------------------------------------------------------------------------------------
Net decrease (2,080,223) $(28,282,743) (3,482,570) $(54,471,317)
- -------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 8,744,706 $131,236,225 803,507 $13,148,283
- -------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 7,096 134,103
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (871,976) (12,561,146) (435,727) (7,589,556)
- -------------------------------------------------------------------------------------------------------------
Net increase 7,872,730 $118,675,079 374,876 $5,692,830
- -------------------------------------------------------------------------------------------------------------
Year ended 8/31/03 Year ended 8/31/02
SHARES AMOUNT SHARES AMOUNT
CLASS J SHARES
Shares sold 17,800 $257,229 87,573 $1,400,258
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (45,778) (640,054) (58,851) (1,022,864)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) (27,978) $(382,825) 28,722 $377,394
- -------------------------------------------------------------------------------------------------------------
Period ended 8/31/03**
SHARES AMOUNT
CLASS R SHARES
Shares sold 14,585 $224,566
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (1,218) (17,232)
- -------------------------------------------------------------------------------------------------------------
Net increase 13,367 $207,334
- -------------------------------------------------------------------------------------------------------------
Year ended 8/31/03 Period ended 8/31/02*
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 13,890 $204,517 374.370 $5,200
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (620) (10,129) -- --
- -------------------------------------------------------------------------------------------------------------
Net increase 13,270 $194,388 374.370 $5,200
- -------------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 4,683 $64,857 389.456 $5,271
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (122) (1,880) -- --
- -------------------------------------------------------------------------------------------------------------
Net increase 4,561 $62,977 389.456 $5,271
- -------------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 3,281 $45,803 384.047 $5,200
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (17) (232) -- --
- -------------------------------------------------------------------------------------------------------------
Net increase 3,264 $45,571 384.047 $5,200
- -------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529 shares, July 31, 2002, through August 31, 2002.
** For the period from the inception of Class R shares, December 31, 2002, through August 31, 2003.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million 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. A commitment fee of $9,642 which is based on the average daily
unused portion of the line of credit is included in miscellaneous expense. The
fund had no significant borrowings during the year.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust I and Shareholders of
MFS Strategic Growth Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Strategic Growth Fund (the Fund) (one of the portfolios constituting MFS
Series Trust I), including the portfolio of investments, as of August 31,
2003, 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 periods indicated
therein. 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, 2003, 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
Strategic Growth Fund at August 31, 2003, 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 its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 10, 2003
- ------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- ------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of the fund, including
their principal occupations, which, unless specific dates are shown, are of more than five years' duration,
although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer, and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer, (prior to September 2000); Lexington
STEPHEN E. CAVAN (born 11/06/53) Funds, Treasurer (prior to September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company, Vice
STEPHANIE A. DESISTO (born 10/01/53) President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President (November Massachusetts Financial Services Company, Senior
2002 to April 2003); ING Groep N.V./Aeltus Vice President
Investment Management, Senior Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Cohn, Sherratt and Smith, and Ms. O'Neill, have served in their capacity as Trustee of the
Trust continuously since originally elected or appointed. Messrs. Ballen, Ives, Perera and Poorvu, and Ms.
Smith, were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke
has served as Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR AUDITORS
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGER
S. Irfan Ali(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.
gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
AGF-ANN-10/03 232M
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/03
MFS(R) CASH RESERVE FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) CASH RESERVE FUND
Seeks as high a level of current income as is considered consistent with
preservation of capital and liquidity.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ------------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ------------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ------------------------------------------------------
MANAGEMENT REVIEW 5
- ------------------------------------------------------
PERFORMANCE SUMMARY 7
- ------------------------------------------------------
PORTFOLIO OF INVESTMENTS 9
- ------------------------------------------------------
FINANCIAL STATEMENTS 11
- ------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 19
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 25
- ------------------------------------------------------
TRUSTEES AND OFFICERS 26
- ------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES
OF INVESTORS 28
- ------------------------------------------------------
CONTACT INFORMATION 29
- ------------------------------------------------------
ASSET ALLOCATION 30
- -------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is the
best means of achieving superior long-term investment performance. When you're
managing billions of dollars for investors, we think you have an obligation to
have in-depth, firsthand knowledge of every company owned, anywhere in the
world.
We have structured our equity and fixed-income investment teams to capitalize on
the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in each
segment of the fixed-income market and work as part of the same team ensuring
that every member has access to information that may have a material effect on
their investment decisions. As MFS(R) continues to grow and as markets become
more complex, we believe our structure will enable us to maintain a consistent
investment process with the goal of providing strong, long-term investment
performance across market capitalizations, investment disciplines, and country
borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts know
the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry insights
and a wider perspective on companies and industries. Our goal is to make sure
those two sets of perspectives coordinate and work well together. As the world's
markets become more interdependent, we believe our collaborative environment
allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of the
market. We do not believe that analysts and portfolio managers - no matter how
talented they may be - can succeed by working in a vacuum. Through the latest
technology available, our entire research team meets frequently via video and
telephone teleconferences, e-mail, and PDAs (personal digital assistants). When
we hire new analysts, we require them to spend an average of one year in Boston
to learn MFS' culture and to build relationships with their peers. We believe
the interaction among our analysts is the key to making our collaborative
process work toward delivering superior long-term investment performance for our
investors. Our analysts work out of four research offices in Boston, London,
Singapore, and Tokyo, and are assigned to specific regions and industries. They
meet regularly with their colleagues to discuss world trends affecting the
companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income analysts
will look at stability of a company's cash flow, the value of its assets, and
its capital structure to gauge whether the company can generate enough free cash
flow to pay off its debt. As a result of their collaboration, we believe we're
able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make better
investment decisions.
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
MFS Investment Management(R)
September 15, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands of
institutions all over the world look to MFS to manage their assets with insight
and care.
Our success, we believe, has to do with the fact that we see investors as people
with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- --------------------------------------------------------------------------------
MANAGEMENT REVIEW
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
During much of the twelve month period ended August 31, 2003, there was
uncertainty within the marketplace as well as the geopolitical arena. High
levels of jobless claims, volatile energy prices, and the war in Iraq all
constrained business and consumer spending. However, once the war in Iraq was
declared at an end, confidence in U.S. markets began to return.
After holding short-term interest rates steady for most of 2002, the U.S.
Federal Reserve Board (the Fed) unanimously decided to cut short-term rates 50
basis points (0.50%) in November. The Fed stated that the cut was necessary
because uncertainty was inhibiting spending, production, and employment. It then
held short-term interest rates steady through June 24, 2003. On June 25 citing
continued mixed economic data, the Fed cut the federal funds rate by 25 basis
points (0.25%) to 1.00%.
SUPPLY AND DEMAND
Throughout much of the period, commercial paper was in short supply. The
precarious nature of the economy caused companies to cut costs by reducing
overhead, cutting the size of their workforce, and pulling back on merger and
acquisition activity. As a result, companies had less need to finance debt
through the commercial paper market, and supplies of commercial paper became
limited. However, demand for all types of high-quality short-term debt,
including commercial paper, remained strong.
FUND POSITIONING
Until the Fed's interest rate cut in June, we had targeted an average maturity
for the portfolio at about 50 days. After the cut, we revised our target
maturity to 40 to 45 days.
Generally low interest rates throughout the period led us to concentrate
portfolio investments in high-quality commercial paper and asset-backed
commercial paper. These short-term obligations typically yielded three to five
basis points (0.03% to 0.05%) more than discount agency paper of similar
maturity. On August 31, 2003, approximately 82% of the portfolio was invested in
commercial paper and asset-backed commercial paper. The balance of the portfolio
was invested in U.S. government and government-guaranteed issues.
Regardless of market or economic conditions, we will maintain the portfolio's
high quality as we focus on the portfolio's objectives of income, capital
preservation and liquidity.
Respectfully,
/s/ Edward L. O'Dette /s/ Terri A. Vittozzi
Edward L. O'Dette Terri A. Vittozzi
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 8/31/03
- -------------------------------------------------------------------------------
Class Total Return Current Current 7-day yield
Share class inception date 1 Year 7-day yield(1) without waiver(1)
A 9/07/1993 0.69% 0.52% 0.42%
- ------------------------------------------------------------------------------------------------------------------
B 12/29/1986 0.06% 0.05% (0.58)%
- ------------------------------------------------------------------------------------------------------------------
C 4/01/1996 0.06% 0.05% (0.58)%
- ------------------------------------------------------------------------------------------------------------------
529A 7/31/2002 0.45% 0.27% (0.18)%
- ------------------------------------------------------------------------------------------------------------------
529B 7/31/2002 0.07% 0.08% (0.83)%
- ------------------------------------------------------------------------------------------------------------------
529C 7/31/2002 0.07% 0.04% (0.83)%
(1) Based on the latest seven days ended as of August 31, 2003, with dividends annualized. The yield quotation more
closely reflects the current earnings of the fund than the total return quotation.
NOTES TO PERFORMANCE SUMMARY
Performance for share classes offered after class B shares includes the
performance of the fund's class B shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences in
sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of blended
performance generally results in higher performance for share classes with
higher operating expenses than the initial share class, and lower performance
for share classes with lower operating expenses than the initial share class.
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 and financial statements for details. All results
are historical and assume the reinvestment of dividends and capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT THE
DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS
OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investments in the portfolio are not insured or guaranteed by the FDIC or any
other government agency. Although the portfolio seeks to preserve the value of
your investment, it is possible to lose money by investing in the portfolio. The
portfolio's yield will fluctuate with changes in market conditions.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- -------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 8/31/03
- -------------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized
by broad-based asset classes.
Commercial Paper - 82.4%
- -------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -------------------------------------------------------------------------------------------------------
Abbey National North America, due 9/02/03 $35,474 $35,472,936
- -------------------------------------------------------------------------------------------------------
Archer Daniels Midland Co., due 10/31/03 3,600 3,593,220
- -------------------------------------------------------------------------------------------------------
Barton Capital Corp., due 9/19/03 - 11/13/03 32,556 32,510,960
- -------------------------------------------------------------------------------------------------------
BASF AG, due 11/24/03 30,000 29,925,800
- -------------------------------------------------------------------------------------------------------
Blue Ridge Asset Funding, due 9/04/03 11,000 10,999,038
- -------------------------------------------------------------------------------------------------------
BMW U.S. Capital Corp., due 9/02/03 41,006 41,004,747
- -------------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, due 9/19/03 - 10/24/03 41,699 41,654,786
- -------------------------------------------------------------------------------------------------------
Citigroup, Inc., due 9/02/03 - 9/25/03 41,060 41,042,208
- -------------------------------------------------------------------------------------------------------
Corporate Asset Funding, due 10/07/03 - 11/19/03 37,166 37,111,167
- -------------------------------------------------------------------------------------------------------
CRC Funding LLC, due 10/07/03 - 11/05/03 36,373 36,326,385
- -------------------------------------------------------------------------------------------------------
CXC, Inc., due 11/21/03 35,400 35,314,774
- -------------------------------------------------------------------------------------------------------
Edison Asset Securitization LLC, due 9/02/03 41,007 41,005,724
- -------------------------------------------------------------------------------------------------------
Falcon Asset Securitization, due 9/22/03 14,576 14,567,242
- -------------------------------------------------------------------------------------------------------
FCAR Owner Trust, due 10/15/03 30,000 29,962,233
- -------------------------------------------------------------------------------------------------------
General Electric Capital Corp., due 9/02/03 - 11/19/03 41,080 41,005,515
- -------------------------------------------------------------------------------------------------------
Goldman Sachs Group LP, due 11/04/03 20,000 19,963,378
- -------------------------------------------------------------------------------------------------------
Govco, Inc., due 9/02/03 - 11/25/03 41,083 41,005,365
- -------------------------------------------------------------------------------------------------------
HBOS Treasury Services PLC, due 9/09/03 8,095 8,092,949
- -------------------------------------------------------------------------------------------------------
HSBC America, Inc., due 9/04/03 10,000 9,999,000
- -------------------------------------------------------------------------------------------------------
ING America Insurance Holdings, due 11/17/03 15,000 14,965,350
- -------------------------------------------------------------------------------------------------------
Jupiter Securitization Corp., due 9/30/03 25,357 25,335,348
- -------------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter, due 9/02/03 41,006 41,004,747
- -------------------------------------------------------------------------------------------------------
New Center Asset Trust, due 9/15/03 - 10/09/03 35,850 35,819,844
- -------------------------------------------------------------------------------------------------------
Preferred Receivables Funding, due 9/10/03 11,275 11,272,111
- -------------------------------------------------------------------------------------------------------
Quincy Capital Corp., due 10/10/03 - 11/10/03 35,194 35,138,524
- -------------------------------------------------------------------------------------------------------
Sheffield Receivables Corp., due 9/23/03 38,100 38,075,320
- -------------------------------------------------------------------------------------------------------
Societe Generale North America, due 9/04/03 20,000 19,998,017
- -------------------------------------------------------------------------------------------------------
Thunder Bay Funding, Inc., due 9/12/03 - 9/26/03 29,684 29,668,999
- -------------------------------------------------------------------------------------------------------
UBS Finance, Inc., due 9/02/03 41,006 41,004,758
- -------------------------------------------------------------------------------------------------------
Total Commercial Paper, at Amortized Cost and Value $842,840,445
- -------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations - 17.5%
- -------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 10/24/03 $19,300 $19,271,018
- -------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 11/06/03 - 2/26/
04 92,800 92,520,475
- -------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., due 9/08/03 - 12/03/03 67,800 67,679,298
- -------------------------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations,
at Amortized Cost $179,470,791
- -------------------------------------------------------------------------------------------------------
Repurchase Agreement - 0.5%
- -------------------------------------------------------------------------------------------------------
Merrill Lynch, dated 8/29/03, due 9/02/03, total to be
received $4,773,536 (secured by various U.S. Treasury
and Federal Agency obligations in jointly traded
account), at Cost $4,773 $4,773,000
- -------------------------------------------------------------------------------------------------------
Total Investments, at Amortized Cost and Value $1,027,084,236
- -------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.4)% (3,897,726)
- -------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,023,186,510
- -------------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities composing
the total value of your fund.
AT 8/31/03
ASSETS
Investments, at amortized cost and value $1,027,084,236
- -----------------------------------------------------------------------------------------------------
Cash 842
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 1,727,656
- -----------------------------------------------------------------------------------------------------
Interest receivable 402
- -----------------------------------------------------------------------------------------------------
Other assets 1,643
- -----------------------------------------------------------------------------------------------------
Total assets $1,028,814,779
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $19,564
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 4,938,690
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 37,628
- -----------------------------------------------------------------------------------------------------
Shareholders servicing agent fee 9,198
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 31,022
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 592,167
- -----------------------------------------------------------------------------------------------------
Total liabilities $5,628,269
- -----------------------------------------------------------------------------------------------------
Net assets (represented by paid-in capital) $1,023,186,510
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 1,023,186,510
- -----------------------------------------------------------------------------------------------------
Class A shares
Net assets $214,274,576
- -----------------------------------------------------------------------------------------------------
Shares outstanding 214,274,576
- -----------------------------------------------------------------------------------------------------
Net asset value per share $1.00
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $647,268,551
- -----------------------------------------------------------------------------------------------------
Shares outstanding 647,268,551
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $159,714,644
- -----------------------------------------------------------------------------------------------------
Shares outstanding 159,714,644
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class 529A shares
Net assets $1,163,518
- -----------------------------------------------------------------------------------------------------
Shares outstanding 1,163,518
- -----------------------------------------------------------------------------------------------------
Net asset value per share $1.00
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $252,825
- -----------------------------------------------------------------------------------------------------
Shares outstanding 252,825
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $512,396
- -----------------------------------------------------------------------------------------------------
Shares outstanding 512,396
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- -----------------------------------------------------------------------------------------------------
A contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C,
Class 529B and Class 529C shares.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It also
describes any gains and/or losses generated by fund operations.
FOR YEAR ENDED 8/31/03
NET INVESTMENT INCOME
Interest income $14,586,358
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $5,701,874
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 26,787
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 1,078,579
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 7,210,147
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 1,305,375
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 1,571
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 2,295
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 2,677
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 1,139
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 575
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 670
- -----------------------------------------------------------------------------------------------------
Administrative fee 98,764
- -----------------------------------------------------------------------------------------------------
Custodian fee 351,025
- -----------------------------------------------------------------------------------------------------
Printing 86,387
- -----------------------------------------------------------------------------------------------------
Postage 133,248
- -----------------------------------------------------------------------------------------------------
Auditing fees 22,800
- -----------------------------------------------------------------------------------------------------
Legal fees 7,101
- -----------------------------------------------------------------------------------------------------
Miscellaneous 878,537
- -----------------------------------------------------------------------------------------------------
Total expenses $16,909,551
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (10,260)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser and distributor (4,101,801)
- -----------------------------------------------------------------------------------------------------
Net expenses $12,797,490
- -----------------------------------------------------------------------------------------------------
Net investment income $1,788,868
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $1,788,868 $5,966,964
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -----------------------------------------------------------------------------------------------------
Class A $(1,285,090) $(2,239,759)
- -----------------------------------------------------------------------------------------------------
Class B (422,361) (3,004,221)
- -----------------------------------------------------------------------------------------------------
Class C (79,677) (722,967)
- -----------------------------------------------------------------------------------------------------
Class 529A (1,461) (15)
- -----------------------------------------------------------------------------------------------------
Class 529B (142) (1)
- -----------------------------------------------------------------------------------------------------
Class 529C (137) (1)
- --------------------------------------------------------------------------- -------------------
Total distributions declared to shareholders $(1,788,868) $(5,966,964)
- --------------------------------------------------------------------------- -------------------
Fund share (principal) transactions at net asset value of
$1.00 per share
- -----------------------------------------------------------------------------------------------------
Net proceeds from sale of shares $4,764,397,480 $5,712,729,812
- -----------------------------------------------------------------------------------------------------
Shares issued in reinvestment of distributions 1,468,162 5,232,880
- -----------------------------------------------------------------------------------------------------
Shares reacquired (4,885,842,562) (5,321,669,927)
- --------------------------------------------------------------------------- -------------------
Total increase (decrease) in net assets $(119,976,920) $396,292,765
- --------------------------------------------------------------------------- -------------------
NET ASSETS
At beginning of period $1,143,163,430 $746,870,665
- -----------------------------------------------------------------------------------------------------
At end of period $1,023,186,510 $1,143,163,430
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years (or, if
shorter, the period of the fund's operation). Certain information reflects financial results for a single fund share. The total
returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund (assuming
reinvestment of all distributions). This information has been audited by the fund's independent auditors, whose report,
together with the fund's financial statements, are included in this report.
FOR YEARS ENDED 8/31
CLASS A 2003 2002 2001 2000 1999
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.01 $0.01 $0.05 $0.05 $0.04
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
From net investment income $(0.01) $(0.01) $(0.05) $(0.05) $(0.04)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------ -------- ------------ ------------ ---------- ----------
Total return (%) 0.69 1.49 4.85 5.39 4.33
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.71 0.81 0.80 0.81 0.82
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.70 1.44 4.82 5.18 4.22
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $214,275 $242,230 $107,346 $76,062 $98,719
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. If this fee had been incurred
by the fund, the net investment income per share and the ratios would have been:
Net investment income $0.01 $0.01 $0.05 $0.05 $0.04
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 0.81 0.91 0.90 0.91 0.92
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.60 1.34 4.72 5.08 4.12
- ------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS B 2003 2002 2001 2000 1999
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.00+++ $0.00+++ $0.04 $0.04 $0.03
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
From net investment income $(0.00)+++ $(0.00)+++ $(0.04) $(0.04) $(0.03)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ------------ ----------- ----------- -----------
Total return (%) 0.06 0.49 3.81 4.35 3.29
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.35 1.81 1.80 1.81 1.82
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.06 0.50 3.65 4.18 3.22
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $647,269 $741,638 $514,324 $313,782 $541,126
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. The distributor voluntarily
waived a portion of its fee for the year ended August 31, 2003. If these fees had been incurred by the fund, the net
investment income per share and the ratios would have been:
Net investment income $0.00+++ $0.00+++ $0.04 $0.04 $0.03
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.81 1.91 1.90 1.91 1.92
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.40) 0.40 3.55 4.08 3.12
- ------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS C 2003 2002 2001 2000 1999
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.00+++ $0.00+++ $0.04 $0.04 $0.03
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
From net investment income $(0.00)+++ $(0.00)+++ $(0.04) $(0.04) $(0.03)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------- -------- ------------ ----------- ----------- -----------
Total return (%) 0.06 0.49 3.80 4.32 3.25
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.36 1.81 1.80 1.81 1.82
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.06 0.50 3.77 4.15 3.22
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $159,715 $159,254 $125,200 $52,426 $105,559
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. The distributor voluntarily
waived a portion of its fee for the year ended August 31, 2003. If these fees had been incurred by the fund, the net
investment income per share and the ratios would have been:
Net investment income $0.00+++ $0.01 $0.04 $0.04 $0.03
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.81 1.91 1.90 1.91 1.92
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.39) 0.40 3.67 4.05 3.12
- ------------------------------------------------------------------------------------------------------------------------------
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
YEAR PERIOD YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
8/31/03 8/31/02* 8/31/03 8/31/02* 8/31/03 8/31/02*
- --------------------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT#
OPERATIONS
Net investment income(S) $0.00+++ $0.00+++ $0.00+++ $0.00+++ $0.00+++ $0.00+++
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
From net investment income $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.00)+++
- --------------------------------------- -------- --------- -------- -------- -------- --------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------- -------- --------- -------- -------- -------- --------
Total return (%) 0.45 0.08++ 0.07 0.01++ 0.07 0.01++
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 0.96 1.16+ 1.25 2.06+ 1.22 2.06+
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.33 1.04+ 0.06 0.23+ 0.05 0.23+
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $1,164 $30 $253 $5 $512 $5
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. If this fee had been incurred
by the fund, the net investment income per share and the ratios would have been:
Net investment income (loss) $0.00 $0.00+++ $(0.01) $0.00+++ $(0.01) $0.00+++
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.41 1.26+ 2.06 2.16+ 2.06 2.16+
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.12) 0.94+ (0.75) 0.13+ (0.79) 0.13+
- ------------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529 shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share data was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Cash Reserve 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 accounting
principles generally accepted in the United States of America 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 - Money market instruments are valued at amortized cost,
which the Trustees have determined in good faith approximates market value. The
fund's use of amortized cost is subject to the fund's compliance with certain
conditions as specified under Rule 2a-7 of the Investment Company Act of 1940.
Portfolio investments for which market quotations are not readily available, or
whose values have been materially affected by events occurring after the close
of their primary markets, are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The fund requires that the
securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the fund to obtain those securities
in the event of a default under the repurchase agreement. The fund monitors, on
a daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the fund under each such
repurchase agreement. The fund, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized and accreted for financial statement purposes and tax
reporting purposes in accordance with generally accepted accounting principles
and federal tax regulations, respectively.
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.
The tax character of distributions declared for the years ended August 31, 2003
and August 31, 2002 was as follows:
8/31/03 8/31/02
Distributions declared from:
Ordinary income $1,788,868 $5,966,964
- --------------------------------------------------------------------------------
As of August 31, 2003, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income $71,871
- --------------------------------------------------------------------------------
Other temporary differences (71,116)
- --------------------------------------------------------------------------------
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on the value
of settled shares outstanding 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 and Class 529B shares will convert to Class A and Class 529A
shares, respectively 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 0.55% of
the fund's average daily net assets. The investment adviser has contractually
agreed to waive a portion of its fee, which is shown as a reduction of total
expenses in the Statement of Operations. Management fees incurred for the year
ended August 31, 2003 were 0.45% of average daily net assets on an annualized
basis.
The fund pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and 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). Included in
Trustees' compensation is a pension expense of $5,433 for inactive trustees for
the year ended August 31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee at
the following annual percentages of the 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 - The Trustees have adopted a distribution plan for Class A, Class
B, Class C, Class 529A, Class 529B and Class 529C 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 an annual
percentage of its average daily net assets attributable to certain share classes
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 based
on the average daily net assets of accounts attributable to such dealers. These
fees are calculated based on each class' average daily net assets. The maximum
distribution and service fees for each class of shares are as follows:
CLASS A CLASS B CLASS C CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------
Payment of the 0.10% per annum Class A distribution fee and payment of the 0.25%
per annum service fee will commence on such date as the Trustees of the fund may
determine. The 0.25% per annum Class 529A service fee and 0.10% of the Class
529A distribution fee are currently being waived. The remaining 0.15% per annum
Class 529A distribution fee will be implemented on such a date as the Trustees
of the Trust may determine. During the period, MFD voluntarily waived receipt of
a portion of the fund's distribution and service fees on Class B, Class C, Class
529B and Class 529C.
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the year ended August 31, 2003, amounted to:
CLASS A CLASS B CLASS C CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $-- $12,606 $10,143 $-- $-- $--
- -----------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the year ended August 31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS 529A CLASS 529B CLASS 529C
Total Distribution Plan 0.00% 0.64% 0.65% 0.00% 0.29% 0.26%
- -----------------------------------------------------------------------------------------------
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within, for class
A shares, 12 months following the purchase, and, for class C and 529C shares,
the first year from the end of the calendar month of purchase. A contingent
deferred sales charge is imposed on shareholder redemptions of Class B and Class
529B shares in the event of a shareholder redemption within six years from the
end of the calendar month of purchase. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the year ended
August 31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred
Sales Charges Imposed $147,728 $4,347,593 $88,997 $-- $--
- --------------------------------------------------------------------------------
The fund has and may from time to time enter into contracts with program
managers and other parties which administer the tuition programs through which
an investment in the fund's 529 share classes is made. The fund has entered into
an agreement with MFD pursuant to which MFD receives an annual fee of up to
0.35% from the fund based solely upon the value of the fund's 529 share classes
attributable to tuition programs to which MFD or a third party which contracts
with MFD provides administrative services. The current fee has been established
at 0.25% annually of average net assets of the fund's 529 share classes
attributable to such programs. The fee may only be increased with the approval
of the Board of Trustees that oversees the fund. The services provided by MFD or
a third party with which MFD contracts include recordkeeping and tax reporting
and account services, as well as services designed to maintain the program's
compliance with the Internal Revenue Code and other regulatory requirements.
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 0.11%.
Prior to April 1, 2003, the fee was 0.10% of the fund's average daily net
assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, exclusive of securities subject to
repurchase agreements, aggregated $31,547,751,855 and $31,717,989,168,
respectively.
(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:
Years ended 8/31
----------------------------------------
2003 2002
SHARES SHARES
CLASS A SHARES
Shares sold 3,685,903,013 3,986,033,273
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1,006,107 1,800,677
- --------------------------------------------------------------------------------------------------
Shares reacquired (3,714,864,724) (3,852,949,666)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) (27,955,604) 134,884,284
- --------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 678,419,939 1,187,626,083
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 389,411 2,774,800
- --------------------------------------------------------------------------------------------------
Shares reacquired (773,179,025) (963,087,116)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) (94,369,675) 227,313,767
- --------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 397,526,433 539,029,715
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 70,913 657,386
- --------------------------------------------------------------------------------------------------
Shares reacquired (397,137,070) (505,633,043)
- --------------------------------------------------------------------------------------------------
Net increase 460,276 34,054,058
- --------------------------------------------------------------------------------------------------
Year ended Period ended
2003 2002*
------------------- -------------------
CLASS 529A SHARES
Shares sold 1,303,649 30,200
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1,459 15
- --------------------------------------------------------------------------------------------------
Shares reacquired (171,703) (102)
- --------------------------------------------------------------------------------------------------
Net increase 1,133,405 30,113
- --------------------------------------------------------------------------------------------------
*For the period from the inception of Class 529A shares, July 31, 2002, through August 31, 2002.
Year ended Period ended
2003 2002*
------------------- -------------------
SHARES SHARES
CLASS 529B SHARES
Shares sold 668,022 5,341
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 139 1
- --------------------------------------------------------------------------------------------------
Shares reacquired (420,678) --
- --------------------------------------------------------------------------------------------------
Net increase 247,483 5,342
- --------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 576,424 5,200
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 133 1
- --------------------------------------------------------------------------------------------------
Shares reacquired (69,362) --
- --------------------------------------------------------------------------------------------------
Net increase 507,195 5,201
- --------------------------------------------------------------------------------------------------
*For the period from the inception of Class 529B shares and 529C shares, July 31, 2002, through
August 31, 2002.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million 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. A commitment fee of $7,563 which is based on the average daily unused
portion of the line of credit is included in miscellaneous expense. The fund had
no significant borrowings during the year.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees of MFS Series Trust I and the Shareholders of MFS Cash Reserve
Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Cash Reserve Fund (one of the series
comprising MFS Series Trust I) (the "Trust") as of August 31, 2003, 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 five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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. Our procedures included confirmation of
securities owned as of August 31, 2003, by correspondence with the custodian and
brokers. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of MFS Cash Reserve Fund as of August 31, 2003,
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 its financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 9, 2003
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust I (of
which the fund is a series), including their principal occupations, which, unless specific dates are shown,
are of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman
Massachusetts Financial Services Company, Vice
JOHN W. BALLEN (born 09/12/59) President (since August 2000); UAM Fund Services,
Trustee and President Senior Vice President (prior to August 2000)
Massachusetts Financial Services Company, Chief
Executive Officer and Director RICHARD M. HISEY (born 08/29/58)
Treasurer
JAMES R. BORDEWICK, JR. (born 03/06/59) Massachusetts Financial Services Company, Senior
Assistant Secretary and Assistant Clerk Vice President (since July 2002); The Bank of New
Massachusetts Financial Services Company, Senior York, Senior Vice President (September 2000 to
Vice President and Associate General Counsel July 2002); Lexington Global Asset Managers, Inc.,
Executive Vice President and Chief Financial
STEPHEN E. CAVAN (born 11/06/53) Officer (prior to September 2000); Lexington
Secretary and Clerk Funds, Treasurer (prior to September 2000)
Massachusetts Financial Services Company, Senior
Vice President, General Counsel and Secretary ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer
STEPHANIE A. DESISTO (born 10/01/53) Massachusetts Financial Services Company, Vice
Assistant Treasurer President
Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers JAMES O. YOST (born 06/12/60)
Harriman & Co., Senior Vice President (November Assistant Treasurer
2002 to April 2003); ING Groep N.V./Aeltus Massachusetts Financial Services Company, Senior
Investment Management, Senior Vice President Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Cohn, Sherratt and Smith, and Mrs. O'Neill, have served in their capacity as Trustee of the Trust
continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu, and Ms. Smith,
were elected by shareholders and have served as a Trustees of the Trust since January 1, 2002. Mr. Parke has served
as Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 112 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR AUDITORS
MFS Fund Distributors, Inc. Deloitte & Touche LLP
500 Boylston Street, Boston, MA 02116-3741
PORTFOLIO MANAGERS
Edward L. O'Dette(1)
Terri A. Vittozzi(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international equity and
fixed-income investment across the full risk spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and risks
associated with investing. Read the prospectus carefully before investing or
sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors, Inc.
- --------------------------------------------------------------------------------
CONTACT INFORMATION
- --------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec. gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances (1-800-637-8255)
exchanges or stock and touch-tone required 24 hours a day,
bond outlooks 365 days a year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education, account
access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send you
prospectuses, reports, and proxies electronically. You get timely information
without mailbox clutter (and help your fund save printing and postage costs).
SIGN-UP instructions: If your account is registered with us, go to www.mfs.com,
log in to your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available to
you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc. 500
Boylston Street, Boston, MA 02116
LMM-ANN-10/03 90M
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/03
MFS(R) Core Growth Fund
A path for pursuing opportunity
[MFS Logo](R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) CORE GROWTH FUND
The fund seeks capital appreciation.
TABLE OF CONTENTS
----------------------------------------------------
MFS PRIVACY POLICY
----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
----------------------------------------------------
MANAGEMENT REVIEW 5
----------------------------------------------------
PERFORMANCE SUMMARY 8
----------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
----------------------------------------------------
FINANCIAL STATEMENTS 18
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 28
----------------------------------------------------
INDEPENDENT AUDITORS' REPORT 35
----------------------------------------------------
TRUSTEES AND OFFICERS 36
----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 38
----------------------------------------------------
FEDERAL TAX INFORMATION 39
----------------------------------------------------
CONTACT INFORMATION 40
----------------------------------------------------
ASSET ALLOCATION 41
- --------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
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
MFS Investment Management(R)
September 15, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
MFS Original Research
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- --------------------------------------------------------------------------------
MANAGEMENT REVIEW
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
The 12-month period ended August 31, 2003, proved extremely volatile but
rewarding for patient, long-term investors. Nearly all asset classes showed
positive performance for the period, and a second-quarter 2003 rally gave
investors in U.S. stocks their best quarter in many years.
In retrospect, the stock market appears to us to have bottomed in the
September 2002 to March 2003 time frame, driven down largely by a weak
economy, corporate scandals, and geopolitical uncertainty over Iraq and North
Korea. As major fighting ended in Iraq and investors became more confident in
the market, we believe there was an important shift in investor sentiment.
There appeared to be a return to a more rational view of stock values, one
that stood in stark contrast to the exuberance that dominated the market from
about 1998 to 2000 and the fear that seemed the primary motivation for
investors for the three years that followed. It appears to us that, toward the
end of the period, the market was being driven more by company fundamentals -
basic business factors such as earnings and cash flow growth - than we have
seen in some time.
DETRACTORS FROM PERFORMANCE
While fund performance was positive for the period, we did not fully
participate in the market's gains; the portfolio underperformed its benchmark,
the Russell 1000 Growth Index, and its Lipper large cap growth peers.
The fund's relatively cautious stance among technology stocks in general, and
makers of electronics specifically, was the biggest detractor from performance
during the period. Worries that weak corporate technology spending and
excess capacity would dampen profits abated during the period, as inventories
contracted and certain product markets, such as laptop PCs, showed surprising
strength. Our holding in Analog Devices clearly benefited from this shift;
however, that gain was more than offset by our underweighted positions in
semiconductor titans such as Intel.
-----------------------------------------------
TOP 5 STOCK HOLDINGS
AS OF 8/31/03
MICROSOFT CORP. 4.0%
Computer software and systems company
-----------------------------------------------
WAL-MART STORES, INC. 2.9%
General merchandise retailer
-----------------------------------------------
VIACOM, INC. 2.7%
Diversified media and entertainment company
-----------------------------------------------
TARGET CORP. 2.5%
General merchandise retailer
-----------------------------------------------
INTEL CORP. 2.2%
Semiconductor manufacturer
-----------------------------------------------
The portfolio is actively managed, and current
holdings may be different.
-----------------------------------------------
Positioning among industrial goods and services firms also detracted from
results. Our holding in Northrop Grumman was noteworthy in this regard.
Northrop's stock lost traction during the period as a number of one-time
charges masked otherwise good operating performance. The fund's shares in
Lockheed Martin also fell in price and were sold out of the portfolio.
Our holding in hospital firm Tenet Healthcare also detracted from results. Its
shares fell on news that the firm had increased revenues by using a loophole
in Medicare regulations. In the business services area, our position in
payroll and transaction processor Automatic Data Processing also hurt
performance.
CONTRIBUTORS TO PERFORMANCE
Health care, consumer staples, and financial services were the fund's
strongest sectors, relative to its benchmark. In health care, results were
helped by our holding in Forest Laboratories, a pharmaceutical firm whose
products include Lexapro and Celexa for the treatment of depression. Our
emphasis on biotechnology concerns also boosted returns. For example,
Genentech shares climbed dramatically following the release of favorable test
results for the company's colon cancer product, Avastin. This compound may be
the first of a new generation of medications designed to combat cancer by
cutting off blood supply to tumors. Amgen was another strong contributor in
the biotech area.
In the consumer staples sector, stock selection and a relative underweighting
helped performance. Our Avon position performed well as the company's sales
leadership and supply chain initiatives boosted both revenue and earnings
growth. As more defensive consumer staples stocks began to fall out of favor,
especially during the second-quarter 2003 rally, the fund benefited from not
owning Kimberly Clark and from largely avoiding Coca-Cola, which was not held
in the portfolio at period end.
In the financial services sector, the portfolio's focus on capital-markets-
sensitive franchises such as Goldman Sachs helped performance as bond spreads
narrowed, trading volumes rose, and security underwriting activity showed
signs of renewed life. The fund's positions in home loan provider Fannie Mae
and student loan provider SLM Corp. also added to results.
Respectfully,
/s/ Stephen Pesek
Stephen Pesek
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. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 8/31/03
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of the fund's
original share class in comparison to its benchmarks. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including the reinvestment of any
dividends and capital gains distributions. 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.) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 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, 2003. Index information is from January 1,
1996.)
MFS Core
Growth Fund - Russell 1000
Class A Growth Index
1/96 $ 9,425 $10,000
8/97 16,876 15,084
8/99 28,323 24,221
8/01 27,198 17,674
8/03 23,204 15,692
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/1996 9.00% -18.51% 4.80% 12.48%
- ------------------------------------------------------------------------------
B 12/31/1999 8.22% -19.03% 4.32% 12.14%
- ------------------------------------------------------------------------------
C 12/31/1999 8.29% -19.02% 4.35% 12.16%
- ------------------------------------------------------------------------------
I 1/02/1997 9.42% -18.21% 5.09% 12.70%
- ------------------------------------------------------------------------------
R 12/31/2002 9.00% -18.51% 4.80% 12.48%
- ------------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative Benchmarks
- ------------------------------------------------------------------------------
Average large cap growth fund+ 12.34% -19.98% 0.29% 5.11%
- ------------------------------------------------------------------------------
Russell 1000 Growth Index# 14.08% -21.41% -0.79% 6.05%
- ------------------------------------------------------------------------------
- --------------------
Average annual
with sales charge
- --------------------
Share class 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 2.73% -20.10% 3.57% 11.61%
- ------------------------------------------------------------------------------
B 4.22% -19.82% 3.99% 12.14%
- ------------------------------------------------------------------------------
C 7.29% -19.02% 4.35% 12.16%
- ------------------------------------------------------------------------------
I and R class shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 9.00% -45.88% 26.44% 146.20%
- ------------------------------------------------------------------------------
B 8.22% -46.92% 23.57% 140.62%
- ------------------------------------------------------------------------------
C 8.29% -46.90% 23.70% 140.87%
- ------------------------------------------------------------------------------
I 9.42% -45.29% 28.20% 149.95%
- ------------------------------------------------------------------------------
R 9.00% -45.88% 26.44% 146.20%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 2003. Index information is from January
1, 1996.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
RUSSELL 1000 GROWTH INDEX - measures the performance of large-cap U.S.
growth stocks.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflects the deduction of the maximum
5.75% sales charge. Class B results, including sales charge, reflects the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results, including sales
charge, redeemed within one year from the end of the calendar month of
purchase reflects the deduction of the 1% CDSC. Class I shares have no sales
charges and are available only to certain investors. Class R shares have no
sales charges and are available only to certain retirement plans.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
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 and financial statements for details. All results
are historical and assume the reinvestment of dividends and capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
Investing in small and/or emerging growth companies is riskier than investing
in more-established companies.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- -------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS- 8/31/03
- -------------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is divided
by broad-based asset classes.
Stocks - 98.6%
- -------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------------
U.S. Stocks - 95.5%
- -------------------------------------------------------------------------------------------------------
Aerospace - 1.6%
- -------------------------------------------------------------------------------------------------------
Northrop Grumman Corp. 109,200 $10,426,416
- -------------------------------------------------------------------------------------------------------
United Technologies Corp. 25,000 2,006,250
- -------------------------------------------------------------------------------------------------------
$12,432,666
- -------------------------------------------------------------------------------------------------------
Airlines - 0.3%
- -------------------------------------------------------------------------------------------------------
JetBlue Airways Corp.* 47,000 $2,533,300
- -------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.7%
- -------------------------------------------------------------------------------------------------------
Nike, Inc., "B" 98,900 $5,635,322
- -------------------------------------------------------------------------------------------------------
Automotive - 0.2%
- -------------------------------------------------------------------------------------------------------
Harley-Davidson, Inc. 37,900 $1,888,178
- -------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 6.7%
- -------------------------------------------------------------------------------------------------------
American Express Co. 227,900 $10,266,895
- -------------------------------------------------------------------------------------------------------
Citigroup, Inc. 338,000 14,652,300
- -------------------------------------------------------------------------------------------------------
Countrywide Credit Industries, Inc. 25,000 1,696,250
- -------------------------------------------------------------------------------------------------------
Fannie Mae 52,000 3,369,080
- -------------------------------------------------------------------------------------------------------
MBNA Corp. 330,200 7,706,868
- -------------------------------------------------------------------------------------------------------
Northern Trust Corp. 46,200 1,951,488
- -------------------------------------------------------------------------------------------------------
SLM Corp. 304,500 12,234,810
- -------------------------------------------------------------------------------------------------------
$51,877,691
- -------------------------------------------------------------------------------------------------------
Biotechnology - 3.6%
- -------------------------------------------------------------------------------------------------------
Amgen, Inc.* 252,600 $16,646,340
- -------------------------------------------------------------------------------------------------------
Celgene Corp.* 19,500 750,555
- -------------------------------------------------------------------------------------------------------
Genentech, Inc.* 61,000 4,843,400
- -------------------------------------------------------------------------------------------------------
Gilead Sciences, Inc.* 46,500 3,101,550
- -------------------------------------------------------------------------------------------------------
MedImmune, Inc.* 56,100 1,956,207
- -------------------------------------------------------------------------------------------------------
$27,298,052
- -------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 5.5%
- -------------------------------------------------------------------------------------------------------
AOL Time Warner, Inc.* 576,000 $9,423,360
- -------------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.* 370,300 16,707,936
- -------------------------------------------------------------------------------------------------------
Comcast Corp., "A"* 210,700 6,268,325
- -------------------------------------------------------------------------------------------------------
EchoStar Communications Corp., "A"* 50,000 1,845,000
- -------------------------------------------------------------------------------------------------------
Liberty Media Corp.* 648,200 7,843,220
- -------------------------------------------------------------------------------------------------------
$42,087,841
- -------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.7%
- -------------------------------------------------------------------------------------------------------
Franklin Resources, Inc. 50,000 $2,159,500
- -------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 121,600 10,760,384
- -------------------------------------------------------------------------------------------------------
Janus Capital Group, Inc. 50,000 863,500
- -------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 269,800 14,509,844
- -------------------------------------------------------------------------------------------------------
$28,293,228
- -------------------------------------------------------------------------------------------------------
Business Services - 1.2%
- -------------------------------------------------------------------------------------------------------
Automatic Data Processing, Inc. 38,700 $1,544,517
- -------------------------------------------------------------------------------------------------------
Computer Sciences Corp.* 60,000 2,554,200
- -------------------------------------------------------------------------------------------------------
First Data Corp. 98,200 3,770,880
- -------------------------------------------------------------------------------------------------------
Paychex, Inc. 45,400 1,634,400
- -------------------------------------------------------------------------------------------------------
$9,503,997
- -------------------------------------------------------------------------------------------------------
Chemicals - 1.8%
- -------------------------------------------------------------------------------------------------------
3M Co. 88,600 $12,622,842
- -------------------------------------------------------------------------------------------------------
Dow Chemical Co. 42,800 1,477,884
- -------------------------------------------------------------------------------------------------------
$14,100,726
- -------------------------------------------------------------------------------------------------------
Computer Software - 9.9%
- -------------------------------------------------------------------------------------------------------
Amdocs Ltd.* 200,000 $4,476,000
- -------------------------------------------------------------------------------------------------------
BEA Systems, Inc.* 232,100 3,144,955
- -------------------------------------------------------------------------------------------------------
Cadence Design Systems, Inc.* 108,400 1,541,448
- -------------------------------------------------------------------------------------------------------
Getty Images, Inc.* 100,000 4,080,000
- -------------------------------------------------------------------------------------------------------
Mercury Interactive Corp.* 52,600 2,308,614
- -------------------------------------------------------------------------------------------------------
Microsoft Corp. 1,150,000 30,498,000
- -------------------------------------------------------------------------------------------------------
Network Associates, Inc.* 200,000 2,784,000
- -------------------------------------------------------------------------------------------------------
Oracle Corp.* 978,300 12,502,674
- -------------------------------------------------------------------------------------------------------
Symantec Corp.* 124,900 7,173,007
- -------------------------------------------------------------------------------------------------------
VERITAS Software Corp.* 223,100 7,692,488
- -------------------------------------------------------------------------------------------------------
$76,201,186
- -------------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.5%
- -------------------------------------------------------------------------------------------------------
EMC Corp.* 394,400 $5,028,600
- -------------------------------------------------------------------------------------------------------
Hewlett-Packard Co. 154,700 3,081,624
- -------------------------------------------------------------------------------------------------------
International Business Machines Corp. 112,800 9,250,728
- -------------------------------------------------------------------------------------------------------
Manhattan Associates, Inc.* 50,200 1,487,426
- -------------------------------------------------------------------------------------------------------
$18,848,378
- -------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.3%
- -------------------------------------------------------------------------------------------------------
Avon Products, Inc. 212,300 $13,608,430
- -------------------------------------------------------------------------------------------------------
Procter & Gamble Co. 132,400 11,557,196
- -------------------------------------------------------------------------------------------------------
$25,165,626
- -------------------------------------------------------------------------------------------------------
Consumer Services - 0.9%
- -------------------------------------------------------------------------------------------------------
Autobytel, Inc.* 200,000 $1,702,000
- -------------------------------------------------------------------------------------------------------
Career Education Corp.* 122,400 5,523,912
- -------------------------------------------------------------------------------------------------------
$7,225,912
- -------------------------------------------------------------------------------------------------------
Electrical Equipment - 2.6%
- -------------------------------------------------------------------------------------------------------
General Electric Co. 244,700 $7,235,779
- -------------------------------------------------------------------------------------------------------
Tyco International Ltd. 602,400 12,397,392
- -------------------------------------------------------------------------------------------------------
$19,633,171
- -------------------------------------------------------------------------------------------------------
Electronics - 6.9%
- -------------------------------------------------------------------------------------------------------
Agere Systems, Inc., "B"* 166,000 $473,100
- -------------------------------------------------------------------------------------------------------
Analog Devices, Inc.* 254,100 10,418,100
- -------------------------------------------------------------------------------------------------------
Applied Materials, Inc.* 124,400 2,687,040
- -------------------------------------------------------------------------------------------------------
Broadcom Corp., "A"* 59,700 1,640,556
- -------------------------------------------------------------------------------------------------------
Intel Corp. 594,700 17,020,314
- -------------------------------------------------------------------------------------------------------
International Rectifier Corp.* 25,000 1,039,750
- -------------------------------------------------------------------------------------------------------
Linear Technology Corp. 203,200 8,375,904
- -------------------------------------------------------------------------------------------------------
Microchip Technology, Inc. 153,800 4,307,938
- -------------------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 123,000 4,915,080
- -------------------------------------------------------------------------------------------------------
Xilinx, Inc.* 77,300 2,383,932
- -------------------------------------------------------------------------------------------------------
$53,261,714
- -------------------------------------------------------------------------------------------------------
Entertainment - 4.6%
- -------------------------------------------------------------------------------------------------------
Disney (Walt) Co. 409,700 $8,398,850
- -------------------------------------------------------------------------------------------------------
InterActive Corp.* 182,700 6,761,727
- -------------------------------------------------------------------------------------------------------
Viacom, Inc., "B" 450,400 20,268,000
- -------------------------------------------------------------------------------------------------------
$35,428,577
- -------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.5%
- -------------------------------------------------------------------------------------------------------
CVS Corp. 121,500 $3,960,900
- -------------------------------------------------------------------------------------------------------
Food & Non Alcoholic Beverages - 1.4%
- -------------------------------------------------------------------------------------------------------
PepsiCo, Inc. 241,400 $10,751,956
- -------------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.1%
- -------------------------------------------------------------------------------------------------------
Carnival Corp. 171,700 $5,939,103
- -------------------------------------------------------------------------------------------------------
MGM Mirage, Inc.* 64,000 2,320,640
- -------------------------------------------------------------------------------------------------------
$8,259,743
- -------------------------------------------------------------------------------------------------------
General Merchandise - 6.9%
- -------------------------------------------------------------------------------------------------------
Kohl's Corp.* 186,900 $11,821,425
- -------------------------------------------------------------------------------------------------------
Target Corp. 476,200 19,333,720
- -------------------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 371,100 21,957,987
- -------------------------------------------------------------------------------------------------------
$53,113,132
- -------------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 0.3%
- -------------------------------------------------------------------------------------------------------
Aetna, Inc. 34,500 $1,966,500
- -------------------------------------------------------------------------------------------------------
Insurance - 2.6%
- -------------------------------------------------------------------------------------------------------
AFLAC, Inc. 81,900 $2,621,619
- -------------------------------------------------------------------------------------------------------
American International Group, Inc. 262,600 15,643,082
- -------------------------------------------------------------------------------------------------------
Chubb Corp. 28,600 1,943,084
- -------------------------------------------------------------------------------------------------------
$20,207,785
- -------------------------------------------------------------------------------------------------------
Internet - 0.6%
- -------------------------------------------------------------------------------------------------------
eBay, Inc.* 85,200 $4,731,156
- -------------------------------------------------------------------------------------------------------
Leisure & Toys
- -------------------------------------------------------------------------------------------------------
Hasbro, Inc. 4,900 90,650
- -------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.4%
- -------------------------------------------------------------------------------------------------------
Ingersoll-Rand Co. Ltd. 53,700 $3,196,224
- -------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.4%
- -------------------------------------------------------------------------------------------------------
Caremark Rx, Inc.* 135,000 $3,392,550
- -------------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.* 50,000 1,961,000
- -------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.* 243,100 3,901,755
- -------------------------------------------------------------------------------------------------------
WebMD Corp.* 132,600 1,365,780
- -------------------------------------------------------------------------------------------------------
$10,621,085
- -------------------------------------------------------------------------------------------------------
Medical Equipment - 3.4%
- -------------------------------------------------------------------------------------------------------
Boston Scientific Corp.* 14,500 $871,450
- -------------------------------------------------------------------------------------------------------
Guidant Corp. 118,300 5,938,660
- -------------------------------------------------------------------------------------------------------
Invitrogen Corp.* 17,641 1,017,356
- -------------------------------------------------------------------------------------------------------
Medtronic, Inc. 212,400 10,530,792
- -------------------------------------------------------------------------------------------------------
St. Jude Medical, Inc.* 81,000 4,217,670
- -------------------------------------------------------------------------------------------------------
Thermo Electron Corp.* 150,000 3,418,500
- -------------------------------------------------------------------------------------------------------
$25,994,428
- -------------------------------------------------------------------------------------------------------
Oil Services - 1.5%
- -------------------------------------------------------------------------------------------------------
Noble Corp.* 144,500 $5,228,010
- -------------------------------------------------------------------------------------------------------
Schlumberger Ltd. 124,600 6,168,946
- -------------------------------------------------------------------------------------------------------
$11,396,956
- -------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.5%
- -------------------------------------------------------------------------------------------------------
Dell, Inc.* 383,300 $12,507,079
- -------------------------------------------------------------------------------------------------------
Seagate Technology 188,800 4,344,288
- -------------------------------------------------------------------------------------------------------
Solectron Corp.* 420,300 2,492,379
- -------------------------------------------------------------------------------------------------------
$19,343,746
- -------------------------------------------------------------------------------------------------------
Pharmaceuticals - 5.9%
- -------------------------------------------------------------------------------------------------------
Abbott Laboratories, Inc. 112,700 $4,541,810
- -------------------------------------------------------------------------------------------------------
Forest Laboratories, Inc.* 97,700 4,591,900
- -------------------------------------------------------------------------------------------------------
Johnson & Johnson Co. 210,900 10,456,422
- -------------------------------------------------------------------------------------------------------
Lilly (Eli) & Co. 59,300 3,945,229
- -------------------------------------------------------------------------------------------------------
Pfizer, Inc. 430,300 12,874,576
- -------------------------------------------------------------------------------------------------------
Wyeth Co. 212,100 9,088,485
- -------------------------------------------------------------------------------------------------------
$45,498,422
- -------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.6%
- -------------------------------------------------------------------------------------------------------
Tribune Co. 100,000 $4,625,000
- -------------------------------------------------------------------------------------------------------
Restaurants - 1.8%
- -------------------------------------------------------------------------------------------------------
Brinker International, Inc.* 59,900 $2,048,580
- -------------------------------------------------------------------------------------------------------
McDonald's Corp. 223,600 5,013,112
- -------------------------------------------------------------------------------------------------------
Starbucks Corp.* 237,900 6,765,876
- -------------------------------------------------------------------------------------------------------
$13,827,568
- -------------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.2%
- -------------------------------------------------------------------------------------------------------
Airgas, Inc. 75,000 $1,404,750
- -------------------------------------------------------------------------------------------------------
Specialty Stores - 4.5%
- -------------------------------------------------------------------------------------------------------
Bed Bath & Beyond, Inc.* 49,800 $2,142,894
- -------------------------------------------------------------------------------------------------------
Best Buy Co., Inc.* 133,800 6,958,938
- -------------------------------------------------------------------------------------------------------
Circuit City Stores, Inc. 100,000 1,043,000
- -------------------------------------------------------------------------------------------------------
Home Depot, Inc. 127,500 4,100,400
- -------------------------------------------------------------------------------------------------------
Lowe's Cos., Inc. 171,000 9,381,060
- -------------------------------------------------------------------------------------------------------
PETsMART, Inc.* 100,000 2,392,000
- -------------------------------------------------------------------------------------------------------
Tiffany & Co. 54,600 2,125,032
- -------------------------------------------------------------------------------------------------------
TJX Cos., Inc. 307,900 6,669,114
- -------------------------------------------------------------------------------------------------------
$34,812,438
- -------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.3%
- -------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 863,000 $16,526,450
- -------------------------------------------------------------------------------------------------------
Juniper Networks, Inc.* 44,600 768,012
- -------------------------------------------------------------------------------------------------------
$17,294,462
- -------------------------------------------------------------------------------------------------------
Trucking - 0.6%
- -------------------------------------------------------------------------------------------------------
FedEx Corp. 45,000 $3,019,500
- -------------------------------------------------------------------------------------------------------
Werner Enterprises, Inc. 50,000 1,237,500
- -------------------------------------------------------------------------------------------------------
$4,257,000
- -------------------------------------------------------------------------------------------------------
Wireless Communications - 1.0%
- -------------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc.* 567,600 $4,892,712
- -------------------------------------------------------------------------------------------------------
Sprint Corp. (PCS Group)* 585,000 3,036,150
- -------------------------------------------------------------------------------------------------------
$7,928,862
- -------------------------------------------------------------------------------------------------------
Total U.S. Stocks $734,698,328
- -------------------------------------------------------------------------------------------------------
Foreign Stocks - 3.1%
- -------------------------------------------------------------------------------------------------------
Bermuda - 0.8%
- -------------------------------------------------------------------------------------------------------
ACE Ltd. (Insurance) 100,000 $3,220,000
- -------------------------------------------------------------------------------------------------------
XL Capital Ltd., "A" (Insurance) 37,200 2,817,900
- -------------------------------------------------------------------------------------------------------
$6,037,900
- -------------------------------------------------------------------------------------------------------
Canada
- -------------------------------------------------------------------------------------------------------
Nortel Networks Corp. (Telecommunications - Wireline)* 70,100 $227,825
- -------------------------------------------------------------------------------------------------------
Finland - 0.3%
- -------------------------------------------------------------------------------------------------------
Nokia Corp., ADR (Telecommunications - Wireline) 154,900 $2,523,321
- -------------------------------------------------------------------------------------------------------
Germany - 1.0%
- -------------------------------------------------------------------------------------------------------
Bayerische Motoren Werke AG (Automotive) 191,400 $7,572,861
- -------------------------------------------------------------------------------------------------------
Netherlands - 0.2%
- -------------------------------------------------------------------------------------------------------
ASML Holding N.V. (Electronics)* 97,700 $1,553,430
- -------------------------------------------------------------------------------------------------------
Taiwan - 0.7%
- -------------------------------------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co. Ltd., ADR
(Electronics) 430,068 $5,066,201
- -------------------------------------------------------------------------------------------------------
United Kingdom - 0.1%
- -------------------------------------------------------------------------------------------------------
Vodafone Group PLC (Wireless Communications)* 400,000 $730,383
- -------------------------------------------------------------------------------------------------------
Total Foreign Stocks $23,711,921
- -------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $643,946,998) $758,410,249
- -------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 2.9%
- -------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Amortized Cost 22,052,188 $22,052,188
- -------------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.0%
- -------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -------------------------------------------------------------------------------------------------------
Federal Home Loan Bank Consolidated Discount Notes,
due 9/02/03 $13,556 $13,555,684
- -------------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Discount Notes, due 9/02/03 9,295 9,294,716
- -------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $22,850,400
- -------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $688,849,586) $803,312,837
- -------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (4.5)% (34,467,474)
- -------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $768,845,363
- -------------------------------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities composing
the total value of your fund.
AT 8/31/03
ASSETS
Investments, at value, including $21,341,017 of securities
on loan (identified cost, $688,849,586) $803,312,837
- -----------------------------------------------------------------------------------------------------
Cash 640
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 2,528,117
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 3,682,665
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 530,404
- -----------------------------------------------------------------------------------------------------
Total assets $810,054,663
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares reacquired $1,551,704
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased 17,259,922
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 22,052,188
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 47,408
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 36,118
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 261,960
- -----------------------------------------------------------------------------------------------------
Total liabilities $41,209,300
- -----------------------------------------------------------------------------------------------------
Net assets $768,845,363
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $901,463,608
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 114,462,928
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (246,977,436)
- -----------------------------------------------------------------------------------------------------
Accumulated net investment loss (103,737)
- -----------------------------------------------------------------------------------------------------
Total $768,845,363
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 53,757,879
- -----------------------------------------------------------------------------------------------------
Class A shares
Net assets $496,271,288
- -----------------------------------------------------------------------------------------------------
Shares outstanding 34,432,812
- -----------------------------------------------------------------------------------------------------
Net asset value per share $14.41
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 X $14.41) $15.29
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
Net assets $155,601,667
- -----------------------------------------------------------------------------------------------------
Shares outstanding 11,040,421
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $14.09
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $110,786,410
- -----------------------------------------------------------------------------------------------------
Shares outstanding 7,859,811
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $14.10
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $4,317,380
- -----------------------------------------------------------------------------------------------------
Shares outstanding 295,175
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption
price per share $14.63
- -----------------------------------------------------------------------------------------------------
Class R shares
Net assets $1,868,618
- -----------------------------------------------------------------------------------------------------
Shares outstanding 129,660
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption
price per share $14.41
- -----------------------------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It also
describes any gains and/or losses generated by fund operations.
FOR YEAR ENDED 8/31/03
NET INVESTMENT LOSS
Income
- -----------------------------------------------------------------------------------------------------
Dividends $5,533,773
- -----------------------------------------------------------------------------------------------------
Interest 218,618
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (66,949)
- -----------------------------------------------------------------------------------------------------
Total investment income $5,685,442
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $4,929,383
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 17,356
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 686,773
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 1,516,518
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 1,283,344
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 909,187
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R) 2,369
- -----------------------------------------------------------------------------------------------------
Administrative fee 64,349
- -----------------------------------------------------------------------------------------------------
Custodian fee 281,778
- -----------------------------------------------------------------------------------------------------
Printing 74,536
- -----------------------------------------------------------------------------------------------------
Postage 70,976
- -----------------------------------------------------------------------------------------------------
Auditing fees 33,674
- -----------------------------------------------------------------------------------------------------
Legal fees 4,057
- -----------------------------------------------------------------------------------------------------
Miscellaneous 794,017
- -----------------------------------------------------------------------------------------------------
Total expenses $10,668,317
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (172,461)
- -----------------------------------------------------------------------------------------------------
Net expenses $10,495,856
- -----------------------------------------------------------------------------------------------------
Net investment loss $(4,810,414)
- -----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $(46,093,963)
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions (54,059)
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions $(46,148,022)
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $111,641,152
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (466)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $111,640,686
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency $65,492,664
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $60,682,250
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment loss $(4,810,414) $(5,026,422)
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (46,148,022) (159,458,811)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign
currency translation 111,640,686 11,758,109
- ----------------------------------------------------------- --------------- -----------------
Increase (decrease) in net assets from operations $60,682,250 $(152,727,124)
- ----------------------------------------------------------- --------------- -----------------
Net increase in net assets from fund share transactions $88,713,665 $539,015,264
- ----------------------------------------------------------- --------------- -----------------
Total increase in net assets $149,395,915 $386,288,140
- ----------------------------------------------------------- --------------- -----------------
NET ASSETS
At beginning of period $619,449,448 $233,161,308
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment loss
of $103,737 and $50,061, respectively) $768,845,363 $619,449,448
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years.
Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by
which an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of all distributions).
This information has been audited by the fund's independent auditors, whose report, together with the fund's financial
statements, are included in this report.
FOR YEARS ENDED 8/31
CLASS A 2003 2002 2001 2000 1999
Net asset value, beginning of period $13.22 $16.89 $27.51 $19.46 $14.44
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.07) $(0.12) $(0.11) $(0.16) $--
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.26 (3.55) (9.73) 9.75 7.34
- ------------------------------------------------ -------- ------------ ------------ ---------- ----------
Total from investment operations $1.19 $(3.67) $(9.84) $9.59 $7.34
- ------------------------------------------------ -------- ------------ ------------ ---------- ----------
LESS DISTRIBUTIONS
From net realized gain on investments and
foreign currency transactions $-- $-- $(0.53) $(1.54) $(2.32)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments
and foreign currency transactions -- -- (0.25) -- --
- ------------------------------------------------ -------- ------------ ------------ ---------- ----------
Total distributions $-- $-- $(0.78) $(1.54) $(2.32)
- ------------------------------------------------ -------- ------------ ------------ ---------- ----------
Net asset value, end of period $14.41 $13.22 $16.89 $27.51 $19.46
- ------------------------------------------------ -------- ------------ ------------ ---------- ----------
Total return (%)(+) 9.00 (21.73) (36.57) 51.38 54.33
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.42 1.47 1.52 1.25 0.88
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.52) (0.76) (0.56) (0.69) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 312 257 283 303 240
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $496,271 $417,986 $111,062 $10,833 $1,837
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser voluntarily agreed under a temporary expense reimbursement agreement to pay all of the fund's
operating expenses, exclusive of management and distribution and service fees from January 1, 2000 through July 30, 2002. In
consideration, the fund paid the investment adviser a reimbursement fee not greater than 0.40% of average daily net assets.
Prior to January 1, 2000, the investment adviser and distributor voluntarily waived their fees. In consideration, the fund
paid the investment adviser a fee not greater than 1.50% of average daily net assets. To the extent actual expenses were
over these limitations, and the waivers had not been in place, the net investment loss and ratios would have been:
Net investment loss -- $(0.11) $(0.12) $(0.39) $(0.22)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## -- 1.43 1.57 2.20 2.13
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss -- (0.72) (0.61) (1.64) (1.26)
- ------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(+) 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.
Financial Highlights - continued
FOR YEARS ENDED 8/31
PERIOD ENDED
CLASS B 2003 2002 2001 8/31/00*
Net asset value, beginning of period $13.01 $16.72 $27.41 $23.88
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.15) $(0.22) $(0.23) $(0.28)
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.23 (3.49) (9.70) 3.81
- ----------------------------------------------------- ------- ------------ ----------- ----------------
Total from investment operations $1.08 $(3.71) $(9.93) $3.53
- ----------------------------------------------------- ------- ------------ ----------- ----------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments and
foreign currency transactions $-- $-- $(0.52) $--
- ------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.24) --
- ----------------------------------------------------- ------- ------------ ----------- ----------------
Total distributions $-- $-- $(0.76) $--
- ----------------------------------------------------- ------- ------------ ----------- ----------------
Net asset value, end of period $14.09 $13.01 $16.72 $27.41
- ----------------------------------------------------- ------- ------------ ----------- ----------------
Total return (%) 8.22 (22.13) (37.01) 14.74++
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.07 2.12 2.17 2.15+
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.18) (1.41) (1.20) (1.51)+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 312 257 283 303
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $155,602 $114,619 $68,839 $8,795
- ------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser voluntarily agreed under a temporary expense reimbursement agreement to pay all of the fund's
operating expenses, exclusive of management and distribution and service fees from January 1, 2000 through July 30,
2002. In consideration, the fund paid the investment adviser a reimbursement fee not greater than 0.40% of average
daily net assets. To the extent actual expenses were over this limitation, the net investment loss per share and the
ratios would have been:
Net investment loss -- $(0.21) $(0.24) $(0.40)
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## -- 2.08 2.22 2.85+
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss -- (1.37) (1.25) (2.21)+
- ------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class B shares, December 31, 1999, through August 31, 2000.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
PERIOD ENDED
CLASS C 2003 2002 2001 8/31/00*
Net asset value, beginning of period $13.02 $16.73 $27.43 $23.88
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.15) $(0.22) $(0.23) $(0.27)
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.23 (3.49) (9.70) 3.82
- ----------------------------------------------------- -------- ----------- ----------- ----------------
Total from investment operations $1.08 $(3.71) $(9.93) $3.55
- ----------------------------------------------------- -------- ----------- ----------- ----------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments and
foreign currency transactions $-- $-- $(0.53) $--
- ------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.24) --
- ----------------------------------------------------- -------- ----------- ----------- ----------------
Total distributions $-- $-- $(0.77) $--
- ----------------------------------------------------- -------- ----------- ----------- ----------------
Net asset value, end of period $14.10 $13.02 $16.73 $27.43
- ----------------------------------------------------- -------- ----------- ----------- ----------------
Total return (%) 8.29 (22.18) (36.99) 14.82++
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.07 2.12 2.17 2.15+
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.18) (1.41) (1.20) (1.50)+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 312 257 283 303
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $110,786 $82,441 $45,879 $4,750
- ------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser voluntarily agreed under a temporary expense reimbursement agreement to pay all of the fund's
operating expenses, exclusive of management and distribution and service fees from January 1, 2000 through July 30,
2002. In consideration, the fund paid the investment adviser a reimbursement fee not greater than 0.40% of average
daily net assets. To the extent actual expenses were over this limitation, the net investment loss per share and the
ratios would have been:
Net investment loss -- $(0.21) $(0.24) $(0.39)
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## -- 2.08 2.22 2.85+
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss -- (1.37) (1.25) (2.22)+
- ------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class C shares, December 31, 1999, through August 31, 2000.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS I 2003 2002 2001 2000 1999
Net asset value, beginning of period $13.37 $17.01 $27.63 $19.47 $14.46
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.02) $(0.06) $(0.03) $(0.09) $--
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.28 (3.58) (9.80) 9.79 7.33
- -------------------------------------------------- -------- ----------- ----------- ---------- ----------
Total from investment operations $1.26 $(3.64) $(9.83) $9.70 $7.33
- -------------------------------------------------- -------- ----------- ----------- ---------- ----------
LESS DISTRIBUTIONS
From net realized gain on investments and
foreign currency transactions $-- $-- $(0.54) $(1.54) $(2.32)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.25) -- --
- -------------------------------------------------- -------- ----------- ----------- ---------- ----------
Total distributions $-- $-- $(0.79) $(1.54) $(2.32)
- -------------------------------------------------- -------- ----------- ----------- ---------- ----------
Net asset value, end of period $14.63 $13.37 $17.01 $27.63 $19.47
- -------------------------------------------------- -------- ----------- ----------- ---------- ----------
Total return (%) 9.42 (21.40) (36.39) 51.77 54.40
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.07 1.12 1.15 0.94 0.71
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.16) (0.39) (0.14) (0.37) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 312 257 283 303 240
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $4,317 $4,403 $7,381 $11,483 $10,285
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser voluntarily agreed under a temporary expense reimbursement agreement to pay all of the fund's
operating expenses, exclusive of management fee from January 1, 2000 through July 30, 2002. In consideration, the
fund paid the investment adviser a reimbursement fee not greater than 0.40% of average daily net assets. Prior to
January 1, 2000, the investment adviser voluntarily waived its fee. To the extent actual expenses were over this
limitation and the waivers had not been in place, the net investment loss per share and ratios would have been:
Net investment loss -- $(0.06) $(0.04) $(0.39) $(0.14)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## -- 1.08 1.20 1.84 1.46
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss -- (0.35) (0.19) (1.27) (0.77)
- ------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR PERIOD ENDED 8/31
CLASS R 2003*
Net asset value, beginning of period $12.35
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.08)
- -----------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 2.14###
- ------------------------------------------------------------------- -------
Total from investment operations $2.06
- ------------------------------------------------------------------- -------
Net asset value, end of period $14.41
- ------------------------------------------------------------------- -------
Total return (%) 16.68++
- -----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 1.65+
- -----------------------------------------------------------------------------
Net investment loss (0.82)+
- -----------------------------------------------------------------------------
Portfolio turnover 312
- -----------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,869
- -----------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002,
through August 31, 2003.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
### The per share amount is not in accordance with the net realized and
unrealized gain/loss for the period because of the timing of the sales of
fund shares and the amount of the per share realized and unrealized gains
and losses at such time.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Core Growth 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
accounting principles generally accepted in the United States of America
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 in the fund's portfolio for which
market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. All other securities (other than short-term
obligations), in the fund's portfolio for which the principal market is one or
more securities or commodities exchanges (whether domestic or foreign) will be
valued at the last reported sale price or at the settlement price prior to the
determination (or if there has been no current sale, at the closing bid price)
on the primary exchange on which such securities are traded; but if a
securities exchange is not the principal market for securities, such
securities will, if market quotations are readily available, be valued at
current bid prices. Short-term obligations in the fund's portfolio are valued
at amortized cost, which constitutes fair value as determined by the Board of
Trustees. Short-term obligations with a remaining maturity in excess of 60
days will be valued upon dealer-supplied valuations. Portfolio investments for
which market quotations are not readily available, or whose values have been
materially affected by events occurring after the close of their primary
markets, are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize
a joint trading account for the purpose of entering into one or more
repurchase agreements.
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 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 agents. Income
from securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized or accreted for financial statement purposes in accordance
with generally accepted accounting principles. All discount is accreted for 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.
Some securities may be purchased on a "when-issued" or "forward delivery" basis,
which means that the securities will be delivered to the fund at a future date,
usually beyond customary settlement time.
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. During the period, the fund's custodian fees were reduced by $7,116
under this arrangement. The fund has entered into a directed brokerage
agreement, under which the broker will credit the fund a portion of the
commissions generated, to offset certain expenses of the fund. For the period,
the fund's other expenses were reduced by $165,345 under this agreement. These
amounts are 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. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions and wash sales.
The fund paid no distributions for the years ended August 31, 2003 and August
31, 2002.
During the year ended August 31, 2003, accumulated net investment loss
decreased by $4,756,738, accumulated net realized loss on investments and
foreign currency transactions decreased by $54,059, and paid-in capital
decreased by $4,810,797 due to differences between book and tax accounting for
currency transactions, and net operating losses. This change had no effect on
the net assets or net asset value per share.
As of August 31, 2003, the components of accumulated losses on a tax basis
were as follows:
Undistributed ordinary income $--
------------------------------------------------------------------
Undistributed long-term capital gain --
------------------------------------------------------------------
Capital loss carryforward (176,659,316)
------------------------------------------------------------------
Unrealized appreciation 64,564,891
------------------------------------------------------------------
Post October capital loss deferred (20,420,083)
------------------------------------------------------------------
Post October currency loss deferred (57,490)
------------------------------------------------------------------
Other temporary differences (46,247)
------------------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on:
EXPIRATION DATE
August 31, 2009 $(217,688)
------------------------------------------------------------------
August 31, 2010 (47,153,586)
------------------------------------------------------------------
August 31, 2011 (129,288,042)
------------------------------------------------------------------
Total $(176,659,316)
------------------------------------------------------------------
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses. Class B shares
will convert to Class A shares, approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the fund's average daily net assets.
The fund pays compensation to the Independent Trustees ("Trustees") in the
form of both a retainer and attendance fees, and 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 inactive trustees and an
unfunded retirement benefit deferral plan for active trustees. Included in
Trustees' compensation is a net decrease of $3,733 as a result of the change
in the fund's pension liability for active Trustees and a pension expense of
$7,481 for inactive trustees for the year ended August 31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
at the following annual percentages of the fund's average daily net assets:
First $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
$116,858 for the year ended August 31, 2003, 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, Class C
and Class R 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 an annual
percentage of its average daily net assets attributable to certain share
classes 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
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A CLASS B CLASS C CLASS R
Distribution Fee 0.10% 0.75% 0.75% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50%
- ----------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the year ended August
31, 2003, amounted to:
CLASS A CLASS B CLASS C CLASS R
Service Fee Retained by MFD $48,489 $255 $730 $0
- ----------------------------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the year ended August 31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS R
Total Distribution Plan 0.35% 1.00% 1.00% 0.50%
- ----------------------------------------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within, for Class A shares,
12 months following the purchase, and, for Class C shares, the first year from
the end of the calendar month of 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 from the end of the calendar month of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended August 31, 2003, were as
follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $2,268 $316,421 $33,224
- -------------------------------------------------------------------------------
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
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$2,099,310,650 and $2,017,458,441, 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 $738,747,623
------------------------------------------------------------------
Gross unrealized appreciation $116,377,794
------------------------------------------------------------------
Gross unrealized depreciation (51,812,580)
------------------------------------------------------------------
Net unrealized appreciation $64,565,214
------------------------------------------------------------------
(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:
Year ended 8/31/03 Year ended 8/31/02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 21,075,431 $274,422,174 34,876,638 $556,530,555
- ---------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 18 295
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (18,249,215) (235,227,052) (9,847,420) (151,062,480)
- ---------------------------------------------------------------------------------------------------------------
Net increase 2,826,216 $39,195,122 25,029,236 $405,468,370
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 4,499,700 $57,190,193 6,878,619 $109,142,273
- ---------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 55 902
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (2,266,015) (28,533,992) (2,190,028) (32,163,269)
- ---------------------------------------------------------------------------------------------------------------
Net increase 2,233,685 $28,656,201 4,688,646 $76,979,906
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 3,430,072 $43,531,150 4,901,418 $77,990,788
- ---------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 366 4,926
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (1,903,646) (23,968,254) (1,311,179) (19,574,787)
- ---------------------------------------------------------------------------------------------------------------
Net increase 1,526,426 $19,562,896 3,590,605 $58,420,927
- ---------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 55,893 $731,199 69,760 $1,101,000
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (89,981) (1,156,127) (174,482) (2,954,939)
- ---------------------------------------------------------------------------------------------------------------
Net decrease (34,088) $(424,928) (104,722) $(1,853,939)
- ---------------------------------------------------------------------------------------------------------------
Period ended 8/31/03*
SHARES AMOUNT
CLASS R SHARES
Shares sold 215,934 $2,925,853
- -------------------------------------------------------------------------
Shares reacquired (86,274) (1,201,479)
- -------------------------------------------------------------------------
Net increase 129,660 $1,724,374
- -------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002,
through August 31, 2003.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million 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. A commitment fee of $4,625 which is based on the average daily
unused portion of the line of credit is included in miscellaneous expense. The
fund had no significant borrowings during the year.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust I and Shareholders of MFS Core Growth Fund:
We have audited the accompanying statement of assets and liabilities of
MFS Core Growth Fund (the Fund) (one of the portfolios constituting MFS Series
Trust I), including the portfolio of investments, as of August 31, 2003, 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 periods indicated therein. 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, 2003, 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 Core Growth Fund at August 31, 2003, 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 its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
October 10, 2003
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust I, of
which the fund is a series, including their principal occupations, which, unless specific dates are shown, are
of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer, and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer, (prior to September 2000); Lexington
STEPHEN E. CAVAN (born 11/06/53) Funds, Treasurer (prior to September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company, Vice
STEPHANIE A. DESISTO (born 10/01/53) President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President (November Massachusetts Financial Services Company, Senior
2002 to April 2003); ING Groep N.V./Aeltus Vice President
Investment Management, Senior Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Cohn, Sherratt and Smith, and Ms. O'Neill, have served in their capacity as Trustee of the
Trust continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu, and
Ms. Smith, were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr.
Parke has served as Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR AUDITORS
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGER
Stephen Pesek(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- ------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.
gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day,
or stock and bond outlooks touch-tone required 365 days a year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
CGF-ANN-10/03 97.5M
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/03
MFS(R) RESEARCH INTERNATIONAL FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements. Access to your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you. We
maintain physical, electronic, and procedural safeguards that comply with
applicable federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) RESEARCH INTERNATIONAL FUND
Seeks capital appreciation.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ----------------------------------------------------
FINANCIAL STATEMENTS 17
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 30
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT 38
- ----------------------------------------------------
TRUSTEES AND OFFICERS 39
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 41
- ----------------------------------------------------
FEDERAL TAX INFORMATION 42
- ----------------------------------------------------
CONTACT INFORMATION 43
- -------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is the
best means of achieving superior long-term investment performance. When you're
managing billions of dollars for investors, we think you have an obligation to
have in-depth, firsthand knowledge of every company owned, anywhere in the
world.
We have structured our equity and fixed-income investment teams to capitalize on
the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in each
segment of the fixed-income market and work as part of the same team ensuring
that every member has access to information that may have a material effect on
their investment decisions. As MFS(R) continues to grow and as markets become
more complex, we believe our structure will enable us to maintain a consistent
investment process with the goal of providing strong, long-term investment
performance across market capitalizations, investment disciplines, and country
borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts know
the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry insights
and a wider perspective on companies and industries. Our goal is to make sure
those two sets of perspectives coordinate and work well together. As the world's
markets become more interdependent, we believe our collaborative environment
allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of the
market. We do not believe that analysts and portfolio managers - no matter how
talented they may be - can succeed by working in a vacuum. Through the latest
technology available, our entire research team meets frequently via video and
telephone teleconferences, e-mail, and PDAs (personal digital assistants). When
we hire new analysts, we require them to spend an average of one year in Boston
to learn MFS' culture and to build relationships with their peers. We believe
the interaction among our analysts is the key to making our collaborative
process work toward delivering superior long-term investment performance for our
investors. Our analysts work out of four research offices in Boston, London,
Singapore, and Tokyo, and are assigned to specific regions and industries. They
meet regularly with their colleagues to discuss world trends affecting the
companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income analysts
will look at stability of a company's cash flow, the value of its assets, and
its capital structure to gauge whether the company can generate enough free cash
flow to pay off its debt. As a result of their collaboration, we believe we're
able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make better
investment decisions.
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
MFS Investment Management(R)
September 15, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands of
institutions all over the world look to MFS to manage their assets with insight
and care.
Our success, we believe, has to do with the fact that we see investors as people
with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- --------------------------------------------------------------------------------
MANAGEMENT REVIEW
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
The twelve-month reporting period was marked by extreme volatility but, in the
end, rewarded long-term investors with better results than they had experienced
in quite some time. Nearly all asset classes showed positive performance for the
period, and a second-quarter 2003 rally gave investors in U.S. stocks their best
quarter in many years.
Modest economic improvements and slightly stronger corporate earnings sparked a
stock market rally in October and November 2002. The stock markets cooled in the
early months of 2003 because of mixed economic signals and an increase in
geopolitical tensions. However, the market began a rebound in mid-March that
continued almost without pause for the balance of the reporting period.
Technology and utilities & communications were among the market's leaders during
the rallies.
DETRACTORS TO PERFORMANCE
Health care, primarily pharmaceuticals, and technology stocks were the most
significant detractors to relative performance for the period. The
pharmaceutical industry continued to be plagued by investor indifference towards
the sector. The group, normally considered to be a defensive investment - people
will pay to stay healthy even in a recession - was rocked by successful
challenges to long-standing patents. Those trends emboldened generic
pharmaceutical companies to increase the number of challenges. As a result, the
stock prices of pharmaceutical firms such as AstraZeneca and Novartis became
more volatile when faced with patent challenges during the period. As of the end
of the period, we continue to believe that AstraZeneca and Novartis have solid
product lines and have a number of drugs in development that show good promise.
- --------------------------------------------------
TOP 5 STOCK HOLDINGS
AS OF 8/31/03
NOVARTIS AG 3.6%
Swiss pharmaceutical company
- --------------------------------------------------
ASTRAZENECA GROUP PLC 3.2%
Pharmaceuticals manufacturer
- --------------------------------------------------
TOTAL S.A. 2.9%
French oil and petrochemical company
- --------------------------------------------------
THE ROYAL BANK OF SCOTLAND GROUP 2.9%
Banking firm with operations in the United
Kingdom and the United States
- --------------------------------------------------
BROTHER INDUSTRIES 2.5%
Japanese manufacturer of sewing
machines, home computers, printer
- --------------------------------------------------
The portfolio is actively managed, and current
holdings may be different.
- --------------------------------------------------
Separately in health care, Jomed, a heart-care surgical products company, was a
significant detractor from performance. The company's financial position was
overstated through improper accounting. When the company disclosed that it had
booked revenues for products it hadn't sold, the stock plummeted. The fund no
longer owns this stock.
The fund was underweighted in technology, relative to its benchmark, and that
weighting detracted from relative performance because the sector was one of the
strongest performing groups in the market rally. Fund performance was also hurt
by not owning Nokia and disappointing results from Tandberg, a company that had
performed well for us in the past. Tandberg is a videoconferencing company that
had enjoyed high, double-digit growth for many periods. When the company
announced that it would not meet growth expectations, its stock price fell. The
fund no longer owns this stock.
The stocks of cosmetics manufacturer Shiseido and videogame software maker Sega
were also sold from the portfolio because of disappointing performance. Although
Shiseido had improved profitability by consolidating its product lines, the
company's sales weakened as a result of the global economic slowdown. In 2002,
Sega had high hopes for the launch of new video games during the second half of
the year. The expected sales for the games did not materialize. Investors
further pushed down Sega's stock price when it announced that it was purchasing
one of its competitors.
CONTRIBUTORS TO PERFORMANCE
Retailing and the utilities & communications sectors turned in strong returns
during the reporting period after struggling during the global economic slowdown
in 2002. Fund performance was also helped by strong stock selection in the
automobile industry.
Chinese power company Huaneng Power, Japanese telecommunications company KDDI,
and France Telecom led performance for the utilities & communications sector.
Huaneng's stock price climbed as Chinese demand for power continued to expand.
KDDI's stock price rose as a result, we think, of investors' focus on the
company's potential for better profit margins and its cost-cutting efforts.
The strong performance of Dutch telecommunications company, Kon KPN is
emblematic of the rebound in many telecommunication companies' stock prices.
Consolidation in the industry, substantial balance sheet repairs, and more
rational spending practices made this and other telecommunications companies
much stronger and their earnings estimates have improved as a result.
Stock selection in retailing made a significant difference to fund performance
for the period. Two stocks, in particular, contributed healthy returns to the
portfolio: British retailers Kingfisher and Next. Kingfisher is a do-it-
yourself retailer that cut costs and spun off its electrical business so that it
could focus on its core business. Kingfisher benefited from strong sales in both
its British and French stores. The stock of Next, a clothing retailer, rose
largely, in our view, on investor confidence in the British consumer.
Nissan and Stanley Electric were strong individual contributors to fund
performance. Nissan had successfully introduced many new models, especially in
the light truck area where it cut into the market share of U.S. automakers. The
company demonstrated a better feel for the U.S. consumer than it had shown
previously and that fact was reflected in its sales. We sold this stock when it
reached our price target. Stanley Electric supplies high intensity headlights to
the automobile industry as well as light emitting display (LEDs) units. Strong
demand for these products boosted the shares.
/s/ David A. Antonelli,
David A. Antonelli,
Director of Global Equity Research
The committee of MFS International Equity Research analysts is responsible for
the day-to-day management of the fund under the general supervision of Mr.
Antonelli.
The opinions expressed in this report are those of the Director of Global Equity
Research and are current only through the end of the period of the report as
stated on the cover. These views are subject to change at any time based on
market and other conditions, and no forecasts can be guaranteed.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 8/31/03
- -------------------------------------------------------------------------------
The following information illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results include
the deduction of the maximum applicable sales charge and reflect the percentage
change in net asset value, including the reinvestment of any dividends and
capital gains distributions. 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. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. (See Notes to Performance Summary.)
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, 2003. Index information is from January 2,
1997.)
MFS Research
International MSCI
Fund - Class A EAFE Index
----------------------------------------------------
1/03/97 $ 9.425 $10,000
8/31/97 10.330 10.476
8/31/99 13.261 13.220
8/31/01 13.799 11.021
8/31/03 12,988 10,304
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/2/1997 6.96% -9.70% 3.88% 4.93%
- ------------------------------------------------------------------------------
B 1/2/1998 6.17% -10.27% 3.24% 4.40%
- ------------------------------------------------------------------------------
C 1/2/1998 6.18% -10.28% 3.22% 4.38%
- ------------------------------------------------------------------------------
I 1/2/1997 7.31% -9.36% 4.30% 5.28%
- ------------------------------------------------------------------------------
R 12/31/2002 6.86% -9.72% 3.87% 4.92%
- ------------------------------------------------------------------------------
529A 7/31/2002 6.68% -9.78% 3.83% 4.89%
- ------------------------------------------------------------------------------
529B 7/31/2002 5.98% -9.97% 3.70% 4.79%
- ------------------------------------------------------------------------------
529C 7/31/2002 5.89% -9.99% 3.68% 4.78%
- --------------
Average annual
- --------------
Comparative Benchmarks 1-yr 3-yr 5-yr Life*
- -----------------------------------------------------------------------------
Average international fund+ 7.47% -12.40% 0.08% 0.91%
- -----------------------------------------------------------------------------
MSCI EAFE Index# 9.58% -10.80% -0.36% 0.45%
- -----------------
Average annual
with sales charge
- -----------------
Share class
- ------------------------------------------------------------------------------
A 0.81% -11.46% 2.66% 4.00%
- ------------------------------------------------------------------------------
B 2.17% -11.15% 2.88% 4.40%
- ------------------------------------------------------------------------------
C 5.18% -10.28% 3.22% 4.38%
- ------------------------------------------------------------------------------
529A 0.54% -11.54% 2.61% 3.96%
- ------------------------------------------------------------------------------
529B 1.98% -10.82% 3.35% 4.79%
- ------------------------------------------------------------------------------
529C 4.89% -9.99% 3.68% 4.78%
I and R class shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 6.96% -26.36% 20.99% 37.81%
- ------------------------------------------------------------------------------
B 6.17% -27.76% 17.27% 33.18%
- ------------------------------------------------------------------------------
C 6.18% -27.77% 17.18% 33.08%
- ------------------------------------------------------------------------------
I 7.31% -25.55% 23.43% 40.87%
- ------------------------------------------------------------------------------
R 6.86% -26.42% 20.88% 37.69%
- ------------------------------------------------------------------------------
529A 6.68% -26.55% 20.67% 37.45%
- ------------------------------------------------------------------------------
529B 5.98% -27.02% 19.91% 36.58%
- ------------------------------------------------------------------------------
529C 5.89% -27.07% 19.82% 36.47%
* For the period from the commencement of the fund's investment operations,
January 2, 1997, through August 31, 2003. Index information is from January
2, 1997.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE (EUROPE, AUSTRALASIA, FAR EAST)
INDEX - a commonly used measure of the international stock market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results, including sales charge, reflects the deduction of the
maximum 5.75% sales charge. Class B and 529B results, including sales charge,
reflects the deduction of the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C and 529C results,
including sales charge, redeemed within one year from the end of the calendar
month of purchase reflects the deduction of the 1% CDSC. Class I shares have no
sales charges and are available only to certain investors. Class R shares have
no sales charges and are available only to certain retirement plans. Class 529A,
529B, and 529C shares are only available in conjunction with qualified tuition
programs, such as the MFS 529 Savings Plan.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences in
sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of blended
performance generally results in higher performance for share classes with
higher operating expenses than the initial share class, and lower performance
for share classes with lower operating expenses than the initial share class.
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 and financial statements for details. All results
are historical and assume the reinvestment of dividends and capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT THE
DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS
OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The portfolio may invest a substantial amount of its assets in issuers located
in a limited number of countries and therefore is susceptible to adverse
economic, political or regulatory developments affecting those countries.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- ------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 8/31/03
- ------------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized
by broad-based asset classes.
Stocks - 97.0%
- -------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------------
Foreign Stocks - 96.1%
- -------------------------------------------------------------------------------------------------------
Australia - 2.3%
- -------------------------------------------------------------------------------------------------------
APN News & Media Ltd. (Printing & Publishing)* 412,990 $952,021
- -------------------------------------------------------------------------------------------------------
Australia & New Zealand Banking Group Ltd.
(Banks & Credit Cos.)* 731,690 8,324,151
- -------------------------------------------------------------------------------------------------------
John Fairfax Holdings Ltd. (Printing & Publishing) 1,901,400 3,864,529
- -------------------------------------------------------------------------------------------------------
News Corp., Ltd. (Broadcast & Cable TV)* 536,033 4,594,562
- -------------------------------------------------------------------------------------------------------
$17,735,263
- -------------------------------------------------------------------------------------------------------
Austria - 0.8%
- -------------------------------------------------------------------------------------------------------
Erste Bank der Oesterreichischen Sparkassen AG
(Banks & Credit Cos.) 65,700 $6,059,873
- -------------------------------------------------------------------------------------------------------
Belgium - 1.4%
- -------------------------------------------------------------------------------------------------------
Fortis (Banks & Credit Cos.) 610,490 $10,281,903
- -------------------------------------------------------------------------------------------------------
Canada - 3.8%
- -------------------------------------------------------------------------------------------------------
EnCana Corp. (Natural Gas - Pipeline) 184,980 $6,937,585
- -------------------------------------------------------------------------------------------------------
Manitoba Telecom Services, Inc. (Telephone Services) 174,960 5,274,446
- -------------------------------------------------------------------------------------------------------
Molson, Inc. (Alcoholic Beverage) 325,700 7,878,511
- -------------------------------------------------------------------------------------------------------
Talisman Energy, Inc. (Energy - Independent) 188,700 8,951,975
- -------------------------------------------------------------------------------------------------------
$29,042,517
- -------------------------------------------------------------------------------------------------------
China - 1.1%
- -------------------------------------------------------------------------------------------------------
Huaneng Power International, Inc.
(Utilities - Electric Power) 5,957,000 $8,172,568
- -------------------------------------------------------------------------------------------------------
Denmark - 1.2%
- -------------------------------------------------------------------------------------------------------
Danske Bank (Banks & Credit Cos.) 504,350 $9,259,815
- -------------------------------------------------------------------------------------------------------
France - 9.1%
- -------------------------------------------------------------------------------------------------------
Axa (Insurance) 126,600 $2,247,721
- -------------------------------------------------------------------------------------------------------
France Telecom S.A. (Telephone Services) 596,510 14,820,483
- -------------------------------------------------------------------------------------------------------
Generale de Sante (Medical & Health Technology &
Services) 243,395 2,555,355
- -------------------------------------------------------------------------------------------------------
L'Air Liquide S.A. (Specialty Chemicals) 57,100 8,210,697
- -------------------------------------------------------------------------------------------------------
Sanofi-Synthelabo S.A. (Pharmaceuticals) 215,442 12,126,529
- -------------------------------------------------------------------------------------------------------
Societe Television Francaise 1 (Broadcast & Cable TV) 97,384 2,962,327
- -------------------------------------------------------------------------------------------------------
Suez S.A. (Utilities - Electric Power) 282,600 4,464,420
- -------------------------------------------------------------------------------------------------------
Total Fina Elf S.A., "B" (Energy - Independent) 139,693 21,453,948
- -------------------------------------------------------------------------------------------------------
$68,841,480
- -------------------------------------------------------------------------------------------------------
Germany - 5.0%
- -------------------------------------------------------------------------------------------------------
Bayerische Motoren Werke AG (Automotive) 310,070 $12,268,113
- -------------------------------------------------------------------------------------------------------
Celanese AG (Specialty Chemicals) 174,514 5,275,932
- -------------------------------------------------------------------------------------------------------
Fresenius Medical Care AG (Medical & Health Technology
& Services) 69,314 2,584,717
- -------------------------------------------------------------------------------------------------------
Linde AG (Specialty Chemicals) 132,990 5,571,782
- -------------------------------------------------------------------------------------------------------
Porsche AG (Automotive) 24,010 10,241,417
- -------------------------------------------------------------------------------------------------------
Stada Arzneimittel AG (Pharmaceuticals) 39,400 2,284,402
- -------------------------------------------------------------------------------------------------------
$38,226,363
- -------------------------------------------------------------------------------------------------------
Greece - 0.3%
- -------------------------------------------------------------------------------------------------------
Public Power Corp. (Utilities - Electric Power) 101,800 $1,994,305
- -------------------------------------------------------------------------------------------------------
Hong Kong - 0.4%
- -------------------------------------------------------------------------------------------------------
Denway Motors, Ltd. (Automotive) 5,382,000 $3,036,292
- -------------------------------------------------------------------------------------------------------
Hungary - 0.5%
- -------------------------------------------------------------------------------------------------------
OTP Bank Ltd., ADR (Banks & Credit Cos.)* 178,000 $4,058,400
- -------------------------------------------------------------------------------------------------------
India - 0.3%
- -------------------------------------------------------------------------------------------------------
Bharti Tele Venture (Telephone Services)* 1,636,306 $2,470,872
- -------------------------------------------------------------------------------------------------------
Ireland - 1.7%
- -------------------------------------------------------------------------------------------------------
Bank of Ireland (Banks & Credit Cos.) 833,130 $9,891,740
- -------------------------------------------------------------------------------------------------------
Irish Life & Permanent PLC (Banks & Credit Cos.) 267,370 3,180,359
- -------------------------------------------------------------------------------------------------------
$13,072,099
- -------------------------------------------------------------------------------------------------------
Japan - 19.9%
- -------------------------------------------------------------------------------------------------------
Aeon Credit Service Co., Ltd. (Banks & Credit Cos.) 103,000 $3,663,281
- -------------------------------------------------------------------------------------------------------
ALPS Electric Co., Ltd. (Electronics) 115,000 1,955,350
- -------------------------------------------------------------------------------------------------------
Bridgestone Corp. (Automotive) 395,000 5,500,921
- -------------------------------------------------------------------------------------------------------
Brother Industries Ltd. (Electronics) 2,079,000 18,440,802
- -------------------------------------------------------------------------------------------------------
Chugai Pharmaceutical Co., Ltd. (Pharmaceuticals) 848,310 8,985,826
- -------------------------------------------------------------------------------------------------------
Credit Saison Co., Ltd. (Banks & Credit Cos.) 435,400 7,537,456
- -------------------------------------------------------------------------------------------------------
Fast Retailing Co. (Specialty Stores) 235,000 9,767,751
- -------------------------------------------------------------------------------------------------------
Fujikura Ltd. (Electrical Equipment) 1,495,000 6,739,255
- -------------------------------------------------------------------------------------------------------
Heiwa Corp. (Leisure & Toys) 102,000 1,494,794
- -------------------------------------------------------------------------------------------------------
Honda Motor Co., Ltd. (Automotive) 357,500 14,553,070
- -------------------------------------------------------------------------------------------------------
Ibiden Co. (Electronics) 125,700 2,037,097
- -------------------------------------------------------------------------------------------------------
Japan Telecom Holdings Co., Ltd. (Telephone Services) 2,644 $8,633,192
- -------------------------------------------------------------------------------------------------------
KDDI Corp. (Telephone Services) 2,623 13,420,157
- -------------------------------------------------------------------------------------------------------
Nippon Electric Glass Co., Ltd. (Electronics) 350,000 3,884,390
- -------------------------------------------------------------------------------------------------------
Nippon Oil Corp. (Energy - Independent) 1,002,000 3,958,709
- -------------------------------------------------------------------------------------------------------
Stanley Electric Co., Ltd. (Electronics) 848,000 14,970,905
- -------------------------------------------------------------------------------------------------------
Sumitomo Bakelite Co., Ltd. (Specialty Chemicals) 549,000 2,968,839
- -------------------------------------------------------------------------------------------------------
Tokyo Broadcasting System, Inc. (Broadcast & Cable TV) 326,000 5,000,986
- -------------------------------------------------------------------------------------------------------
Tokyo Gas Co., Ltd. (Natural Gas Distribution) 4,336,390 13,192,942
- -------------------------------------------------------------------------------------------------------
Uni-Charm Corp. (Consumer Goods & Services) 94,500 4,373,313
- -------------------------------------------------------------------------------------------------------
$151,079,036
- -------------------------------------------------------------------------------------------------------
Mexico - 0.4%
- -------------------------------------------------------------------------------------------------------
Telefonos de Mexico S.A., ADR (Telephone Services) 93,500 $2,833,985
- -------------------------------------------------------------------------------------------------------
Netherlands - 3.6%
- -------------------------------------------------------------------------------------------------------
ABN AMRO Holding N.V. (Brokerage & Asset Managers)* 204,900 $3,592,848
- -------------------------------------------------------------------------------------------------------
Fugro N.V. (Oil Services)* 44,162 2,306,102
- -------------------------------------------------------------------------------------------------------
Koninklijke KPN N.V. (Telephone Services) 929,650 6,448,890
- -------------------------------------------------------------------------------------------------------
Koninklijke Philips Electronics N.V. (Electronics) 290,560 7,091,286
- -------------------------------------------------------------------------------------------------------
VNU N.V. (Printing & Publishing)* 251,155 7,813,839
- -------------------------------------------------------------------------------------------------------
$27,252,965
- -------------------------------------------------------------------------------------------------------
Norway - 0.5%
- -------------------------------------------------------------------------------------------------------
Gjensidige NOR ASA (Banks & Credit Cos.) 112,100 $3,764,904
- -------------------------------------------------------------------------------------------------------
Singapore - 2.8%
- -------------------------------------------------------------------------------------------------------
MobileOne Asia Ltd. (Wireless Communications) 2,603,000 $2,048,788
- -------------------------------------------------------------------------------------------------------
Singapore Telecommunications Ltd. (Telephone Services) 11,541,000 11,190,156
- -------------------------------------------------------------------------------------------------------
United Overseas Bank Ltd. (Banks & Credit Cos.) 1,134,000 8,214,110
- -------------------------------------------------------------------------------------------------------
$21,453,054
- -------------------------------------------------------------------------------------------------------
South Africa - 1.1%
- -------------------------------------------------------------------------------------------------------
Gold Fields Ltd. (Precious Metals) 203,100 $2,757,637
- -------------------------------------------------------------------------------------------------------
Impala Platinum Holdings Ltd. (Precious Metals) 71,000 5,494,812
- -------------------------------------------------------------------------------------------------------
$8,252,449
- -------------------------------------------------------------------------------------------------------
South Korea - 1.6%
- -------------------------------------------------------------------------------------------------------
Hyundai Motor Co., Ltd. (Automotive) 221,270 $7,385,086
- -------------------------------------------------------------------------------------------------------
KT&G Corp., GDR (Tobacco)*## 543,840 4,500,276
- -------------------------------------------------------------------------------------------------------
$11,885,362
- -------------------------------------------------------------------------------------------------------
Spain - 2.5%
- -------------------------------------------------------------------------------------------------------
Altadis S.A. (Tobacco) 138,090 $3,263,900
- -------------------------------------------------------------------------------------------------------
Iberdrola S.A. (Utilities - Electric Power) 269,350 4,583,784
- -------------------------------------------------------------------------------------------------------
Telefonica S.A. (Telephone Services) 965,063 11,373,304
- -------------------------------------------------------------------------------------------------------
$19,220,988
- -------------------------------------------------------------------------------------------------------
Sweden - 1.7%
- -------------------------------------------------------------------------------------------------------
Alfa Laval (Machinery & Tools) 471,270 $5,437,947
- -------------------------------------------------------------------------------------------------------
Hennes & Mauritz AB (Specialty Stores) 177,700 3,739,711
- -------------------------------------------------------------------------------------------------------
Swedish Match AB (Tobacco) 587,700 3,970,471
- -------------------------------------------------------------------------------------------------------
$13,148,129
- -------------------------------------------------------------------------------------------------------
Switzerland - 10.4%
- -------------------------------------------------------------------------------------------------------
Credit Suisse Group (Banks & Credit Cos.) 207,200 $6,476,619
- -------------------------------------------------------------------------------------------------------
Givaudan S.A. (Consumer Goods & Services) 7,410 3,070,625
- -------------------------------------------------------------------------------------------------------
Nestle S.A. (Food & Non-Alcohol Beverage) 51,196 11,156,203
- -------------------------------------------------------------------------------------------------------
Novartis AG (Pharmaceuticals) 714,120 26,275,983
- -------------------------------------------------------------------------------------------------------
Roche Holding AG (Pharmaceuticals) 46,600 3,570,786
- -------------------------------------------------------------------------------------------------------
Syngenta AG (Chemicals) 126,884 6,980,365
- -------------------------------------------------------------------------------------------------------
Synthes-Stratec, Inc. (Medical Equipment) 7,455 6,066,692
- -------------------------------------------------------------------------------------------------------
UBS AG (Banks & Credit Cos.) 282,294 15,237,603
- -------------------------------------------------------------------------------------------------------
$78,834,876
- -------------------------------------------------------------------------------------------------------
United Kingdom - 23.7%
- -------------------------------------------------------------------------------------------------------
Anglo Irish Bank Corp., PLC (Banks & Credit Cos.) 499,760 $4,927,325
- -------------------------------------------------------------------------------------------------------
Astrazeneca Group PLC (Pharmaceuticals) 612,510 23,479,515
- -------------------------------------------------------------------------------------------------------
Aviva PLC (Insurance) 1,131,251 8,949,516
- -------------------------------------------------------------------------------------------------------
BG Group PLC (Energy - Independent) 1,817,600 7,820,468
- -------------------------------------------------------------------------------------------------------
BHP Billiton PLC (Metals & Mining) 932,870 6,114,512
- -------------------------------------------------------------------------------------------------------
BP Amoco PLC, ADR (Energy - Integrated) 432,054 18,025,293
- -------------------------------------------------------------------------------------------------------
British Sky Broadcasting Group PLC (Broadcast & Cable TV) 614,710 6,419,452
- -------------------------------------------------------------------------------------------------------
Diageo PLC (Alcoholic Beverages)* 968,787 10,361,620
- -------------------------------------------------------------------------------------------------------
Intertek Testing Servicing PLC (Special Products & Services) 604,090 4,514,708
- -------------------------------------------------------------------------------------------------------
Johnston Press PLC (Printing & Publishing) 759,453 $5,561,651
- -------------------------------------------------------------------------------------------------------
Kingfisher PLC (Specialty Stores) 1,516,540 6,507,174
- -------------------------------------------------------------------------------------------------------
Legal & General Group PLC (Insurance) 4,798,600 7,531,948
- -------------------------------------------------------------------------------------------------------
Next PLC (General Merchandise) 468,588 7,953,771
- -------------------------------------------------------------------------------------------------------
Reckitt Benckiser PLC (Consumer Goods & Services) 530,460 9,957,934
- -------------------------------------------------------------------------------------------------------
Reed Elsevier PLC (Printing & Publishing) 1,157,140 8,853,139
- -------------------------------------------------------------------------------------------------------
Royal Bank of Scotland Group PLC (Banks & Credit Cos.) 852,981 21,179,404
- -------------------------------------------------------------------------------------------------------
Vodafone Group PLC (Wireless Communications) 9,748,200 17,799,799
- -------------------------------------------------------------------------------------------------------
Yell Group PLC (Broadcast & Cable TV)* 842,760 4,254,255
- -------------------------------------------------------------------------------------------------------
$180,211,484
- -------------------------------------------------------------------------------------------------------
Total Foreign Stocks $730,188,982
- -------------------------------------------------------------------------------------------------------
U.S. Stocks - 0.9%
- -------------------------------------------------------------------------------------------------------
Business Services - 0.9%
- -------------------------------------------------------------------------------------------------------
Manpower, Inc. 170,380 $6,629,486
- -------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $687,276,266) $736,818,468
- -------------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.4%
- -------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 9/02/03 $14,068 $14,067,672
- -------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., due 9/22/03 3,700 3,697,259
- -------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $17,764,931
- -------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 10.5%
- -------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Identified Cost 79,778,319 $79,778,319
- -------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $784,819,516) $834,361,718
- -------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (9.9)% (75,058,635)
- -------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $759,303,083
- -------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES,
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities composing
the total value of your fund.
AT 8/31/03
ASSETS
Investments, at value, including $75,895,733 of securities
on loan (identified cost, $784,819,516) $834,361,718
- -----------------------------------------------------------------------------------------------------
Cash 23,713
- -----------------------------------------------------------------------------------------------------
Foreign currency, at value (identified cost $1,315,222) 1,324,150
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 11,030,291
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 3,448,952
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 836,473
- -----------------------------------------------------------------------------------------------------
Other assets 2,429
- -----------------------------------------------------------------------------------------------------
Total assets $851,027,726
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $10,933,554
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 904,531
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 79,778,319
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 61,366
- -----------------------------------------------------------------------------------------------------
Reimbursement fee 24,804
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 22,065
- -----------------------------------------------------------------------------------------------------
Program manager fee 4
- -----------------------------------------------------------------------------------------------------
Total liabilities $91,724,643
- -----------------------------------------------------------------------------------------------------
Net assets $759,303,083
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $821,193,912
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 49,525,455
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (112,387,898)
- -----------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income 971,614
- -----------------------------------------------------------------------------------------------------
Total $759,303,083
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 65,842,643
- -----------------------------------------------------------------------------------------------------
Class A shares
Net assets $387,731,708
- -----------------------------------------------------------------------------------------------------
Shares outstanding 33,628,654
- -----------------------------------------------------------------------------------------------------
Net asset value per share $11.53
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$11.53) $12.23
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
Net assets $88,176,954
- -----------------------------------------------------------------------------------------------------
Shares outstanding 7,877,483
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $11.19
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $46,022,018
- -----------------------------------------------------------------------------------------------------
Shares outstanding 4,118,878
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $11.17
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $232,327,975
- -----------------------------------------------------------------------------------------------------
Shares outstanding 19,779,388
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $11.75
- -----------------------------------------------------------------------------------------------------
Class R shares
Net assets $4,810,131
- -----------------------------------------------------------------------------------------------------
Shares outstanding 417,535
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $11.52
- -----------------------------------------------------------------------------------------------------
Class 529A shares
Net assets $112,602
- -----------------------------------------------------------------------------------------------------
Shares outstanding 9,791
- -----------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $11.50
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$11.50) $12.20
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $41,024
- -----------------------------------------------------------------------------------------------------
Shares outstanding 3,673
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $11.17
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $80,671
- -----------------------------------------------------------------------------------------------------
Shares outstanding 7,241
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $11.14
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and 529A shares is reduced. A contingent
deferred sales charge may be imposed on redemptions of Class A, Class B and Class C, Class 529B and
Class 529C shares.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
FOR YEAR ENDED 8/31/03
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------
Dividends $12,945,266
- -----------------------------------------------------------------------------------------------------
Interest 560,823
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (1,520,398)
- -----------------------------------------------------------------------------------------------------
Total investment income $11,985,691
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $5,570,508
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 13,076
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 585,391
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 1,137,510
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 802,681
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 416,052
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R) 4,962
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 204
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 211
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 465
- -----------------------------------------------------------------------------------------------------
Program manager expense (Class 529A) 146
- -----------------------------------------------------------------------------------------------------
Program manager expense (Class 529B) 53
- -----------------------------------------------------------------------------------------------------
Program manager expense (Class 529C) 116
- -----------------------------------------------------------------------------------------------------
Administrative fee 57,766
- -----------------------------------------------------------------------------------------------------
Custodian fee 994,805
- -----------------------------------------------------------------------------------------------------
Printing 83,196
- -----------------------------------------------------------------------------------------------------
Postage 99,277
- -----------------------------------------------------------------------------------------------------
Auditing fees 35,181
- -----------------------------------------------------------------------------------------------------
Legal fees 6,845
- -----------------------------------------------------------------------------------------------------
Miscellaneous 677,980
- -----------------------------------------------------------------------------------------------------
Total expenses $10,486,425
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (25,867)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (299,446)
- -----------------------------------------------------------------------------------------------------
Net expenses $10,161,112
- -----------------------------------------------------------------------------------------------------
Net investment income $1,824,579
- -----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $8,536,073
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions (590,242)
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions $7,945,831
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $48,486,611
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies (20,390)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $48,466,221
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency $56,412,052
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $58,236,631
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2003 2002
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $1,824,579 $(910,502)
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 7,945,831 (65,545,423)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign
currency translation 48,466,221 11,545,774
- ----------------------------------------------------------------------------- -----------------
Increase (decrease) in net assets from operations $58,236,631 $(54,910,151)
- ----------------------------------------------------------------------------- -----------------
Net increase in net assets from fund share transactions $243,714,815 $132,371,313
- ----------------------------------------------------------------------------- -----------------
Total increase in net assets $301,951,446 $77,461,162
- ----------------------------------------------------------------------------- -----------------
NET ASSETS
At beginning of year $457,351,637 $379,890,475
- -----------------------------------------------------------------------------------------------------
At end of year (including accumulated undistributed net
investment income of $971,614 and accumulated net
investment loss of $(313,961), respectively) $759,303,083 $457,351,637
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 fiscal years
(or, if shorter, the period of the fund's operation). Certain information reflects financial results for a single fund share.
The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund
(assuming reinvestment of all distributions). This information has been audited by the fund's independent auditors, whose
report, together with the fund's financial statements, are included in this report.
FOR YEARS ENDED 8/31
CLASS A 2003 2002 2001 2000 1999
Net asset value, beginning of year $10.78 $12.25 $16.19 $12.47 $10.24
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $0.04 $(0.00)+++ $(0.00)+++ $0.30 $0.03
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 0.71 (1.47) (3.44) 3.78 2.36
- ------------------------------------------------------------- ------------ ---------- --------- ---------
Total from investment operations $0.75 $(1.47) $(3.44) $4.08 $2.39
- ------------------------------------------------------------- ------------ ---------- --------- ---------
LESS DISTRIBUTIONS
From net investment income $-- $-- $(0.09) $(0.02) $(0.01)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions -- -- (0.34) (0.34) (0.15)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.00)+++ -- --
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.07) -- --
- ------------------------------------------------------------- ------------ ---------- --------- ---------
Total distributions $-- $-- $(0.50) $(0.36) $(0.16)
- ------------------------------------------------------------- ------------ ---------- --------- ---------
Net asset value, end of year $11.53 $10.78 $12.25 $16.19 $12.47
- ------------------------------------------------------------- ------------ ---------- --------- ---------
Total return (%)(+) 6.96 (12.00) (21.76) 33.00 23.53
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.75 1.77 1.76 1.77 1.72
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.36 (0.02) (0.02) 1.91 0.27
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 96 153 131 123 136
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year (000 Omitted) $387,732 $313,418 $240,231 $109,310 $16,839
- ------------------------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense reimbursement
agreement to pay all of the fund's operating expenses, exclusive of management and distribution and service fees. In
consideration, the fund pays the investment adviser a reimbursement fee not greater than 0.40% of average daily net assets.
To the extent actual expenses were over this limitation, the net investment income (loss) per share and the ratios would
have been:
Net investment income (loss) $0.03 $(0.01) $(0.01) $0.29 $(0.05)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.80 1.86 1.84 1.84 2.45
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.31 (0.11) (0.10) 1.84 (0.46)
- ------------------------------------------------------------------------------------------------------------------------------
+++ Per share amount was less than $(0.01). # Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) 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.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS B 2003 2002 2001 2000 1999
Net asset value, beginning of year $10.54 $12.04 $15.98 $12.37 $10.21
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.03) $(0.08) $(0.10) $0.18 $(0.04)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 0.68 (1.42) (3.39) 3.77 2.35
- -------------------------------------------------------- ----------- ----------- ----------- -----------
Total from investment operations $0.65 $(1.50) $(3.49) $3.95 $2.31
- -------------------------------------------------------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS
From net investment income $-- $-- $(0.04) $-- $(0.00)+++
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- (0.34) (0.34) (0.15)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.00)+++ -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.07) -- --
- -------------------------------------------------------- ----------- ----------- ----------- -----------
Total distributions $-- $-- $(0.45) $(0.34) $(0.15)
- -------------------------------------------------------- ----------- ----------- ----------- -----------
Net asset value, end of year $11.19 $10.54 $12.04 $15.98 $12.37
- -------------------------------------------------------- ----------- ----------- ----------- -----------
Total return (%) 6.17 (12.46) (22.27) 32.14 22.84
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 2.40 2.42 2.41 2.42 2.37
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.32) (0.69) (0.71) 1.19 (0.36)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 96 153 131 123 136
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $88,177 $82,659 $82,135 $60,559 $10,683
- ---------------------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense reimbursement
agreement to pay all of the fund's operating expenses, exclusive of management and distribution and service fees. In
consideration, the fund pays the investment adviser a reimbursement fee not greater than 0.40% of average daily net assets.
To the extent actual expenses were over this limitation, the net investment income (loss) per share and the ratios would
have been:
Net investment income (loss) $(0.04) $(0.09) $(0.11) $0.17 $(0.12)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.45 2.51 2.49 2.49 3.10
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.37) (0.78) (0.79) 1.12 (1.09)
- ---------------------------------------------------------------------------------------------------------------------------
+++ Per share amount was less than $(0.01). # Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS C 2003 2002 2001 2000 1999
Net asset value, beginning of year $10.52 $12.02 $15.97 $12.36 $10.21
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.03) $(0.08) $(0.09) $0.19 $(0.04)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 0.68 (1.42) (3.40) 3.76 2.34
- ------------------------------------------------------- ----------- ----------- ----------- -----------
Total from investment operations $0.65 $(1.50) $(3.49) $3.95 $2.30
- ------------------------------------------------------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS
From net investment income $-- $-- $(0.05) $-- $(0.00)+++
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- (0.34) (0.34) (0.15)
- ----------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.00)+++ -- --
- ----------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.07) -- --
- ------------------------------------------------------- ----------- ----------- ----------- -----------
Total distributions $-- $-- $(0.46) $(0.34) $(0.15)
- ------------------------------------------------------- ----------- ----------- ----------- -----------
Net asset value, end of year $11.17 $10.52 $12.02 $15.97 $12.36
- ------------------------------------------------------- ----------- ----------- ----------- -----------
Total return (%) 6.18 (12.48) (22.27) 32.17 22.74
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 2.40 2.42 2.41 2.42 2.37
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.32) (0.09) (0.10) 1.28 (0.33)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 96 153 131 123 136
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $46,022 $43,046 $47,375 $31,126 $3,802
- ----------------------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense reimbursement
agreement to pay all of the fund's operating expenses, exclusive of management and distribution and service fees. In
consideration, the fund pays the investment adviser a reimbursement fee not greater than 0.40% of average daily net assets.
To the extent actual expenses were over this limitation, the net investment income (loss) per share and the ratios would
have been:
Net investment income (loss) $(0.04) $(0.09) $(0.10) $0.18 $(0.12)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.45 2.51 2.49 2.49 3.10
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.37) (0.79) (0.78) 1.21 (1.06)
- ----------------------------------------------------------------------------------------------------------------------------
+++ Per share amount was less than $(0.01). # Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS I 2003 2002 2001 2000 1999
Net asset value, beginning of year $10.95 $12.39 $16.33 $12.55 $10.26
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.10 $0.04 $0.03 $0.26 $0.05
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 0.70 (1.48) (3.46) 3.90 2.42
- --------------------------------------------------------- ------------ ----------- ----------- -----------
Total from investment operations $0.80 $(1.44) $(3.43) $4.16 $2.47
- --------------------------------------------------------- ------------ ----------- ----------- -----------
LESS DISTRIBUTIONS
From net investment income $-- $-- $(0.10) $(0.04) $(0.02)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions -- -- (0.34) (0.34) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.00)+++ -- --
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.07) -- --
- --------------------------------------------------------- ------------ ----------- ----------- -----------
Total distributions $-- $-- $(0.51) $(0.38) $(0.18)
- --------------------------------------------------------- ------------ ----------- ----------- -----------
Net asset value, end of year $11.75 $10.95 $12.39 $16.33 $12.55
- --------------------------------------------------------- ------------ ----------- ----------- -----------
Total return (%) 7.31 (11.62) (21.49) 33.61 24.08
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.40 1.42 1.41 1.42 1.37
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.95 0.38 0.25 1.66 0.47
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 96 153 131 123 136
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $232,328 $18,207 $10,150 $10,398 $1,047
- ------------------------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense reimbursement
agreement to pay all of the fund's operating expenses, exclusive of management fee. In consideration, the fund pays the
investment adviser a reimbursement fee not greater than 0.40% of average daily net assets. To the extent actual expenses
were over this limitation, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.10 $0.03 $0.02 $0.25 $(0.03)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.45 1.51 1.49 1.49 2.10
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.90 0.29 0.17 1.59 (0.26)
- ------------------------------------------------------------------------------------------------------------------------------
+++ Per share amount was less than $(0.01). # Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR PERIOD ENDED 8/31
CLASS R 2003*
Net asset value, beginning of period $10.38
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.15
- ------------------------------------------------------------------------------
Total from investment operations $1.14
- ------------------------------------------------------------------------------
Net asset value, end of period $11.52
- ------------------------------------------------------------------------------
Total return (%) 10.98++
- ------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.90+
- ------------------------------------------------------------------------------
Net investment loss (0.09)+
- ------------------------------------------------------------------------------
Portfolio turnover 96
- ------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $4,810
- ------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually
agreed under a temporary expense reimbursement agreement to pay all of the
fund's operating expenses, exclusive of management and distribution and
service fees. In consideration, the fund pays the investment adviser a
reimbursement fee not greater than 0.40% of average daily net assets. To the
extent actual expenses were over this limitation, the net investment loss
per share and the ratios would have been:
Net investment loss $(0.01)
- ------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.95+
- ------------------------------------------------------------------------------
Net investment loss (0.14)+
- ------------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002,
through August 31, 2003.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding. ## Ratios do not
reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS 529A 8/31/03 8/31/02*
Net asset value, beginning of period $10.78 $10.66
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $0.03 $(0.00)+++
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 0.69 0.12
- ------------------------------------------------------------------------------- -----------
Total from investment operations $0.72 $0.12
- ------------------------------------------------------------------------------- -----------
Net asset value, end of period $11.50 $10.78
- ------------------------------------------------------------------------------- -----------
Total return (%)(+) 6.68 1.13++
- ------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 2.00 2.02+
- ------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.30 (0.20)+
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 96 153
- ------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $112 $11
- ------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary
expense reimbursement agreement to pay all of the fund's operating expenses, exclusive of
management, distribution and service fees. In consideration, the fund pays the investment adviser a
reimbursement fee not greater than 0.65% of average daily net assets. To the extent actual expenses
were over this limitation, the net investment income (loss) per share and the ratios would have
been:
Net investment income (loss) $0.03 $(0.00)+++
- ------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.05 2.11+
- ------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.25 (0.29)+
- ------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $(0.01). #Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) 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.
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS 529B 8/31/03 8/31/02*
Net asset value, beginning of period $10.54 $10.42
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.05) $(0.00)+++
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 0.68 0.12
- ------------------------------------------------------------------------------- -----------
Total from investment operations $0.63 $0.12
- ------------------------------------------------------------------------------- -----------
Net asset value, end of period $11.17 $10.54
- ------------------------------------------------------------------------------- -----------
Total return (%) 5.98 1.15++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 2.65 2.67+
- -------------------------------------------------------------------------------------------------------
Net investment loss (0.43) (0.45)+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 96 153
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $41 $5
- -------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary
expense reimbursement agreement to pay all of the fund's operating expenses, exclusive of
management, distribution and service fees. In consideration, the fund pays the investment adviser a
reimbursement fee not greater than 0.65% of average daily net assets. To the extent actual expenses
were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.05) $(0.00)+++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.70 2.76+
- -------------------------------------------------------------------------------------------------------
Net investment loss (0.48) (0.54)+
- -------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $(0.01).
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS 529C 8/31/03 8/31/02*
Net asset value, beginning of period $10.52 $10.40
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.04) $(0.00)+++
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 0.66 0.12
- ------------------------------------------------------------------------------- -----------
Total from investment operations $0.62 $0.12
- ------------------------------------------------------------------------------- -----------
Net asset value, end of period $11.14 $10.52
- ------------------------------------------------------------------------------- -----------
Total return (%) 5.89 1.15++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 2.65 2.67+
- -------------------------------------------------------------------------------------------------------
Net investment loss (0.36) (0.45)+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 96 153
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $81 $5
- -------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary
expense reimbursement agreement to pay all of the fund's operating expenses, exclusive of
management, distribution and service fees. In consideration, the fund pays the investment adviser a
reimbursement fee not greater than 0.65% of average daily net assets. To the extent actual expenses
were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.04) $(0.00)+++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.70 2.76+
- -------------------------------------------------------------------------------------------------------
Net investment loss (0.41) (0.54)+
- -------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $(0.01). #Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Research International 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 accounting
principles generally accepted in the United States of America 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 in the fund's portfolio for which
market quotations are available are valued at the last sale or official closing
price on the primary market or exchange on which they are primarily traded or at
the last quoted bid price for securities in which there were no sales during the
day. If no sales are reported, as is the case for most securities traded over
the counter, securities are valued on the basis of quotations obtained from
brokers and dealers or on the basis of valuations furnished by a pricing
service. Short-term obligations in the fund's portfolio are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Short-term obligations with a remaining maturity in excess of 60 days will be
valued upon dealer-supplied valuations. Portfolio investments for which market
quotations are not readily available, or whose values have been materially
affected by events occurring after the close of their primary markets, are
valued at fair value as determined in good faith by or at the direction of the
Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The fund requires that the
securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the fund to obtain those securities
in the event of a default under the repurchase agreement. The fund monitors, on
a daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the fund under each such
repurchase agreement. The fund, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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
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.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized or accreted for financial statement purposes in accordance
with generally accepted accounting principles. All discount is accreted for 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. During the period, the fund's custodian fees were reduced by $6,067 under
this arrangement. The fund has entered into a directed brokerage agreement,
under which the broker will credit the fund a portion of the commissions
generated, to offset certain expenses of the fund. For the period, the fund's
other expenses were reduced by $19,800 under this agreement. These amounts are
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. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions.
The fund paid no distributions for the years ended August 31, 2002 and August
31, 2003.
During the year ended August 31, 2003, accumulated undistributed net investment
income decreased by $539,004, accumulated net realized loss on investments and
foreign currency transactions decreased by $538,249 and paid- in capital
increased by $755 due to differences between book and tax accounting for
currency transactions and passive foreign investment companies. This change had
no effect on the net assets or net asset value per share.
As of August 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $1,045,910
- --------------------------------------------------------------------------------
Undistributed long-term capital gain --
- --------------------------------------------------------------------------------
Capital loss carryforward (107,978,064)
- --------------------------------------------------------------------------------
Unrealized appreciation 45,115,621
- --------------------------------------------------------------------------------
Other temporary differences (74,296)
- --------------------------------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration.
EXPIRATION DATE
August 31, 2009 $(4,216,806)
- ------------------------------------------------------------------------------
August 31, 2010 (58,123,654)
- ------------------------------------------------------------------------------
August 31, 2011 (45,637,604)
- ------------------------------------------------------------------------------
Total $(107,978,064)
- ------------------------------------------------------------------------------
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution, and service
fees, and program manager 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 and Class 529B shares will convert to Class A and Class 529A
shares, respectively, 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 1.00% of
the fund's average daily net assets.
The fund has a temporary expense reimbursement agreement whereby MFS has
contractually agreed to pay all of the fund's operating expenses, exclusive of
management, distribution, and service fees. The fund in turn will pay MFS an
expense reimbursement fee not greater than 0.40% of average daily net assets for
Class A, Class B, Class C, Class I and Class R and not greater than 0.65% of
average daily net assets for Class 529A, Class 529B and Class 529C. To the
extent that the expense reimbursement fee exceeds the fund's actual expenses,
the excess will be applied to amounts paid by MFS in prior years. At August 31,
2003, aggregate unreimbursed expenses amounted to $1,222,627.
The fund pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and 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 inactive trustees and an unfunded
retirement benefit deferral plan for active trustees. Included in Trustee's
compensation is a net decrease of $3,015 as a result of the change in the fund's
pension liability for active trustees and a pension expense of $592 for inactive
trustees for the year ended August 31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee at
the following annual percentages of the fund's average daily net assets:
First $2 billion 0.0175%
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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
$56,769 and $474 for the year ended August 31, 2003, as its portion of the sales
charge on sales of Class A and Class 529A shares of the fund, respectively.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class R, Class 529A, Class 529B and Class 529C 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 an annual
percentage of its average daily net assets attributable to certain share classes
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 based
on the average daily net assets of accounts attributable to such dealers. These
fees are calculated based on each class' average daily net assets. The maximum
distribution and service fees for each class of shares are as follows:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25% 0.75% 0.75%
- --------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------------------
Total
Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50% 1.00% 1.00%
- --------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for
the year ended August 31, 2003, amounted to:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Service Fee
Retained by MFD $13,448 $226 $173 $-- $25 $3 $--
- --------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the year ended August 31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Total
Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.35% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------
Payment of the 0.15% per annum portion of the Class 529A distribution fee that
is not currently being charged will be implemented on such a date as the
Trustees of the Trust may determine.
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within, for class
A shares, 12 months following the purchase, and, for class C and 529C shares,
the first year from the end of the calendar month of purchase. A contingent
deferred sales charge is imposed on shareholder redemptions of Class B and Class
529B shares in the event of shareholder redemption within six years from the end
of the calendar month of purchase. MFD receives all contingent deferred sales
charges. Contingent deferred sales charges imposed during the year ended August
31, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
$7,668 $203,723 $7,180 $-- $--
- --------------------------------------------------------------------------------
The fund has and may from time to time enter into contracts with program
managers and other parties which administer the tuition programs through which
an investment in the fund's 529 share classes is made. The fund has entered into
an agreement with MFD pursuant to which MFD receives an annual fee of up to
0.35% from the fund based solely upon the value of the fund's 529 share classes
attributable to tuition programs to which MFD or a third party which contracts
with MFD provides administrative services. The current fee has been established
at 0.25% annually of average net assets of the fund's 529 share classes
attributable to such programs. The fee may only be increased with the approval
of the board of trustees that oversees the fund. The services provided by MFD or
a third party with which MFD contracts include recordkeeping and tax reporting
and account services, as well as services designed to maintain the program's
compliance with the Internal Revenue Code and other regulatory requirements.
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 0.11%.
Prior to April 1, 2003, the fee was 0.10% of the fund's average daily net
assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$751,418,916 and $516,943,439, 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 $789,229,350
- ------------------------------------------------------------------------------
Gross unrealized appreciation $59,452,157
- ------------------------------------------------------------------------------
Gross unrealized depreciation (14,319,789)
- ------------------------------------------------------------------------------
Net unrealized appreciation $45,132,368
- ------------------------------------------------------------------------------
(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:
Year ended 8/31/03 Year ended 8/31/02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 30,271,752 $316,573,119 31,844,945 $365,208,111
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (25,705,916) (269,487,051) (22,397,326) (256,099,002)
- ---------------------------------------------------------------------------------------------------------------
Net increase 4,565,836 $47,086,068 9,447,619 $109,109,109
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 2,249,013 $22,954,752 2,968,716 $34,071,924
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (2,215,900) (22,457,073) (1,945,974) (22,287,384)
- ---------------------------------------------------------------------------------------------------------------
Net increase 33,113 $497,679 1,022,742 $11,784,540
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,582,387 $16,129,234 1,832,516 $20,595,011
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (1,556,144) (15,741,059) (1,681,281) (18,870,999)
- ---------------------------------------------------------------------------------------------------------------
Net increase 26,243 $388,175 151,235 $1,724,012
- ---------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 19,092,539 $201,423,230 1,548,792 $17,947,298
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (976,393) (10,403,126) (705,097) (8,215,328)
- ---------------------------------------------------------------------------------------------------------------
Net increase 18,116,146 $191,020,104 843,695 $9,731,970
- ---------------------------------------------------------------------------------------------------------------
Period ended 8/31/03*
SHARES AMOUNT
CLASS R SHARES
Shares sold 741,611 $8,002,008
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (324,076) (3,470,746)
- ---------------------------------------------------------------------------------------------------------------
Net increase 417,535 $4,531,262
- ---------------------------------------------------------------------------------------------------------------
Year ended 8/31/03 Period ended 8/31/02**
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 9,258 $96,624 1,034 $11,211
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (501) (5,665) -- --
- ---------------------------------------------------------------------------------------------------------------
Net increase 8,757 $90,959 1,034 $11,211
- ---------------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 3,318 $34,075 506 $5,271
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (151) (1,630) -- --
- ---------------------------------------------------------------------------------------------------------------
Net increase 3,167 $32,445 506 $5,271
- ---------------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 6,762 $68,334 500 $5,200
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (21) (211) -- --
- ---------------------------------------------------------------------------------------------------------------
Net increase 6,741 $68,123 500 $5,200
- ---------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002, through August 31, 2003.
** For the period from the inception of Classes 529A, 529B and 529C shares, July 31, 2002, through August 31, 2002.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million 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, 2003, was $4,172. The fund had no borrowings during the year.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust I and Shareholders of MFS Research
International Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Research International Fund (the Fund) (one of the Portfolios constituting MFS
Series Trust I), including the portfolio of investments, as of August 31, 2003,
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 periods indicated therein. 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, 2003, 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 International Fund at August 31, 2003, 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 its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
October 10, 2003
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust I (of
which the fund is a series), including their principal occupations, which, unless specific dates are shown,
are of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman
Massachusetts Financial Services Company, Vice
JOHN W. BALLEN (born 09/12/59) President (since August 2000); UAM Fund Services,
Trustee and President Senior Vice President (prior to August 2000)
Massachusetts Financial Services Company, Chief
Executive Officer and Director RICHARD M. HISEY (born 08/29/58)
Treasurer
JAMES R. BORDEWICK, JR. (born 03/06/59) Massachusetts Financial Services Company, Senior
Assistant Secretary and Assistant Clerk Vice President (since July 2002); The Bank of New
Massachusetts Financial Services Company, Senior York, Senior Vice President (September 2000 to
Vice President and Associate General Counsel July 2002); Lexington Global Asset Managers, Inc.,
Executive Vice President and Chief Financial
STEPHEN E. CAVAN (born 11/06/53) Officer (prior to September 2000); Lexington
Secretary and Clerk Funds, Treasurer (prior to September 2000)
Massachusetts Financial Services Company, Senior
Vice President, General Counsel and Secretary ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer
STEPHANIE A. DESISTO (born 10/01/53) Massachusetts Financial Services Company, Vice
Assistant Treasurer President
Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers JAMES O. YOST (born 06/12/60)
Harriman & Co., Senior Vice President (November Assistant Treasurer
2002 to April 2003); ING Groep N.V./Aeltus Massachusetts Financial Services Company, Senior
Investment Management, Senior Vice President Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Ives, Perera and Poorvu, and Ms. Smith, have served in their capacity as Trustee of the Trust
continuously since originally elected or appointed. Messrs. Ballen and Gutow have each served as a Trustee of
the Trust since August 1, 2001. Messrs. Cohn, Sherratt and Smith, and Ms. O'Neill, were elected by
shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke has served as Trustee
of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 112 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR AUDITORS
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741
DIRECTOR OF GLOBAL EQUITY RESEARCH
David A. Antonelli(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international equity and
fixed-income investment across the full risk spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and risks
associated with investing. Read the prospectus carefully before investing or
sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors, Inc.
- ------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
For the year ended August 31, 2003, income from foreign sources was $12,927,504
and the fund designated a foreign tax credit of $1,459,140. Income from foreign
sources may be limited due to the Jobs and Growth Tax Relief Reconciliation Act
of 2003. Complete information will be reported in conjunction with your 2003
form 1099-DIV and related tax information enclosures.
The fund hereby designates the maximum amount allowable as qualified dividend
income eligible for a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconcilliation Act of 2003. Complete information will be
reported in conjunction with your 2003 Form 1099-DIV.
For the year ended August 31, 2003, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 0.70%.
The fund has the option to use equalization, which is a tax basis dividends paid
deduction from earnings and profits distributed to shareholders upon redemption
of shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTACT INFORMATION
- --------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec. gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education, account
access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send you
prospectuses, reports, and proxies electronically. You get timely information
without mailbox clutter (and help your fund save printing and postage costs).
SIGN-UP instructions: If your account is registered with us, go to www.mfs.com,
log in to your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available to
you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc. 500
Boylston Street, Boston, MA 02116
RIF-ANN-10/03 101M
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/03
MFS(R) MANAGED SECTORS FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) MANAGED SECTORS FUND
Seeks to provide capital appreciation.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ----------------------------------------------------
FINANCIAL STATEMENTS 16
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 25
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT 31
- ----------------------------------------------------
TRUSTEES AND OFFICERS 32
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 34
- ----------------------------------------------------
FEDERAL TAX INFORMATION 35
- ----------------------------------------------------
CONTACT INFORMATION 36
- ----------------------------------------------------
ASSET ALLOCATION 37
- -------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
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
MFS Investment Management(R)
September 15, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- --------------------------------------------------------------------------------
MANAGEMENT REVIEW
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
The 12-month period ended August 31, 2003 proved extremely volatile but
rewarding for patient, long-term investors. Nearly all asset classes showed
positive performance for the period, and a second-quarter 2003 rally gave
investors in U.S. stocks their best quarter in many years.
In retrospect, the stock market appears to us to have bottomed in the
September 2002 to March 2003 time frame, driven down largely by a weak
economy, corporate scandals, and geopolitical uncertainty over Iraq and North
Korea. As major fighting ended in Iraq and investors became more confident in
the market, we believe there was an important shift in investor sentiment.
There appeared to be a return to a more rational view of stock values, one
that stood in stark contrast to the exuberance that dominated the market from
about 1998 to 2000 and the fear that seemed the primary motivation for
investors for the next three years. It appears to us that, toward the end of
the period, the market was being driven more by company fundamentals - basic
business factors such as earnings and cash flow growth - than we have seen in
some time.
CONTRIBUTORS TO PERFORMANCE
While the fund somewhat underperformed the Russell 1000 Growth Index, most
share classes outperformed the fund's Lipper large-cap growth peers over the
period. Consumer staples, health care, and financial services were the
portfolio's strongest sectors, relative to its benchmark.
A significant underweighting in the consumer staples sector helped performance
as the market favored stocks in other sectors seen as less defensive areas.
Especially during the second-quarter 2003 market rally, the fund benefited from
not owning familiar names such as Coca-Cola and Kimberly-Clark - stocks that we
felt did not fit our focused growth strategy and that, in fact, underperformed
over the period. Meanwhile, our position in Avon performed well as the company's
sales leadership and supply chain initiatives, boosted both revenue and earnings
growth.
- -----------------------------------------------
TOP 5 STOCK HOLDINGS
AS OF 8/31/03
MICROSOFT CORP. 4.4%
Computer software and systems company
- -----------------------------------------------
CISCO SYSTEMS, INC. 3.7%
Computer networking firm
- -----------------------------------------------
WAL-MART STORES, INC. 2.8%
General merchandise retailer
- -----------------------------------------------
PFIZER, INC. 2.8%
Pharmaceutical products company
- -----------------------------------------------
AMGEN, INC. 2.6%
Biotechnology firm
- -----------------------------------------------
The portfolio is actively managed, and current
holdings may be different.
- -----------------------------------------------
In health care, results were helped by our holding in Forest Laboratories, a
pharmaceutical firm whose products include Lexapro and Celexa for the
treatment of depression. Our emphasis on biotechnology concerns also boosted
returns. For example, Genentech shares climbed dramatically following the
release of favorable test results for the company's colon cancer product,
Avastin. This compound may be the first of a new generation of medications
designed to combat cancer by cutting off blood supply to tumors. Genzyme,
another biotech firm, successfully addressed an excess inventory issue
involving its key drug, Renagel. In addition, the company won FDA approval for
two drugs in its development pipeline. Amgen was another strong contributor in
the biotech area.
In the financial services sector, the portfolio's focus on capital-markets-
sensitive franchises such as Citigroup and Merrill Lynch helped performance as
bond spreads narrowed, trading volumes rose, and security underwriting
activity showed signs of renewed life.
In addition, a cash settlement from a class-action lawsuit aided performance
over the period. The fund was a participant in a suit against Cendant related
to alleged accounting fraud that was uncovered in 1998, after Cendant was
formed by the merger of HFS and CUC International. The fund had owned both HFS
and CUC, and then Cendant, during the merger period. Along with other
participants in the lawsuit, the fund had suffered losses on Cendant stock in
1998.
DETRACTORS FROM PERFORMANCE
In the technology sector, the fund's underweighted position among electronics
makers generally, and Intel specifically, was a key factor constraining
relative performance. Worries that weak corporate technology spending and
excess capacity would dampen profits abated during the period, as inventories
contracted and certain product markets, such as laptop PCs, showed
surprising strength.
More generally, the fund was positioned rather conservatively across the
technology sector. We maintained a slight underweighting in the sector, and
favored high quality, established leaders such as IBM, Cisco, and Dell. While
these stocks rose over the period, their rebound was modest when compared with
that of a number of smaller capitalization companies. Strong performance of
our positions in storage software leader VERITAS Software and chip maker
Analog Devices, unfortunately, proved an insufficient offset for this sector.
In the business services arena, a number of holdings failed to meet our
expectations over the period. Automatic Data Processing (ADP), for example,
had previously dealt with a weak environment - soft demand for its payroll and
financial services trade processing services - by cutting costs. In March of
2003, however, ADP management signaled that they would add back some
incremental expenses and take some other actions that we felt could dampen
future earnings growth potential. The stock fell on the news of the change in
strategy, and we sold our position. Our holdings in travel reservations firm
Sabre Holdings, which we sold, and financial services transaction processor
BISYS Group also declined in price over the period.
Significant individual stocks that detracted from results included hospital
firm Tenet Healthcare and defense contractor Northrop Grumman. Tenet shares
fell on news that the firm had increased revenues by using a loophole in
Medicare regulations; we sold our Tenet position over the period. Northrop
Grumman disappointed investors as a number of one-time charges masked
otherwise good operating performance.
Respectfully,
/s/ Margaret W. Adams /s/ S. Irfan Ali
Margaret W. Adams S. Irfan Ali
Portfolio Manager Portfolio Manager
/s/ John E. Lathrop /s/ Stephen Pesek
John E. Lathrop Stephen Pesek
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 8/31/03
- -------------------------------------------------------------------------------
The following information illustrates the historical performance of the fund's
original share class in comparison to its benchmarks. Performance results
include any applicable contingent deferred sales charges and reflect the
percentage change in net asset value, including the reinvestment of any
dividends and capital gains distributions. 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. PAST PERFORMANCE IS
NO GUARANTEE OF FUTURE RESULTS. (See Notes to Performance Summary.)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended August 31, 2003)
MFS Managed
Sectors Fund - Russell 1000 Russell 3000
Class B Growth Index Growth Index
8/93 $10,000 $10,000 $10,000
8/95 12,758 13,267 13,262
8/97 18,815 21,887 21,401
8/99 23,594 35,146 33,139
8/01 18,534 25,647 24,570
8/03 16,119 22,770 21,996
TOTAL RETURNS
- ----------------------
Average annual
without sales charge
- ----------------------
- ------------------------------------------------------------------------------
Class
Share class inception date 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A 9/20/1993 13.13% -24.07% 1.68% 5.54%
- ------------------------------------------------------------------------------
B 12/29/1986 12.37% -24.56% 1.01% 4.89%
- ------------------------------------------------------------------------------
C 6/1/2000 12.18% -24.53% 1.05% 4.91%
- ------------------------------------------------------------------------------
I 1/2/1997 13.48% -23.82% 2.01% 5.59%
- ------------------------------------------------------------------------------
- ----------------------
Average Annual
- ----------------------
Comparative Benchmarks
- ------------------------------------------------------------------------------
Average large-cap growth fund+ 12.34% -19.98% 0.29% 6.88%
- ------------------------------------------------------------------------------
Russell 1000 Growth Index# 14.08% -21.41% -0.79% 8.58%
- ------------------------------------------------------------------------------
Russell 3000 Growth Index#** 15.38% -20.85% -0.36% 8.20%
- ------------------------------------------------------------------------------
- ----------------------
Average annual
with sales charge
- ----------------------
- ------------------------------------------------------------------------------
A 6.63% -25.55% 0.49% 4.91%
- ------------------------------------------------------------------------------
B 8.37% -25.18% 0.74% 4.89%
- ------------------------------------------------------------------------------
C 11.18% -24.53% 1.05% 4.91%
- ------------------------------------------------------------------------------
I class shares do not have a sales charge. Please see Notes to Performance
Summary for
more details.
- ----------------------
Cumulative without
sales charge
- ----------------------
- ------------------------------------------------------------------------------
A 13.13% -56.22% 8.71% 71.42%
- ------------------------------------------------------------------------------
B 12.37% -57.07% 5.14% 61.19%
- ------------------------------------------------------------------------------
C 12.18% -57.02% 5.37% 61.54%
- ------------------------------------------------------------------------------
I 13.48% -55.80% 10.46% 72.29%
- ------------------------------------------------------------------------------
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
** Effective February 28, 2003, the Russell 1000 Growth Index has replaced the
Russell 3000 Growth Index as the fund's benchmark. We believe the Russell
1000 Growth Index more accurately reflects the fund's large cap growth
discipline, offering investors a more reliable objective measure of the
fund's performance.
INDEX DEFINITIONS
RUSSELL 1000 GROWTH INDEX - The Russell 1000 Growth index measures the
performance of large-cap U.S. growth stocks.
RUSSELL 3000 GROWTH INDEX - The Russell 3000 Growth Index measures the
performance of U.S. growth stocks.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflects the deduction of the maximum
5.75% sales charge. Class B results, including sales charge, reflects the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results, including sales
charge, redeemed within one year from the end of the calendar month of
purchase reflects the deduction of the 1% CDSC. Class I shares have no sales
charges and are available only to certain investors.
Performance for share classes offered after class B shares includes the
performance of the fund's class B shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
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 and financial statements for details. All
results are historical and assume the reinvestment of dividends and
capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
When concentrating on one issuer, the portfolio is sensitive to changes in the
value of these securities.
The portfolio focuses on companies in a limited number of sectors making it
more susceptible to adverse economic, political, or regulatory developments
affecting those sectors than a portfolio that invests more broadly.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- -----------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 8/31/03
- -----------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 98.6%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
Basic Industry - 1.9%
- -----------------------------------------------------------------------------------------------------
3M Co. 25,300 $3,604,491
- -----------------------------------------------------------------------------------------------------
Praxair, Inc. 12,900 823,278
- -----------------------------------------------------------------------------------------------------
$4,427,769
- -----------------------------------------------------------------------------------------------------
Communication Equipment - 1.5%
- -----------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc.* 188,100 $1,621,422
- -----------------------------------------------------------------------------------------------------
Sprint Corp. (PCS Group)* 336,700 1,747,473
- -----------------------------------------------------------------------------------------------------
$3,368,895
- -----------------------------------------------------------------------------------------------------
Consumer Products - 4.0%
- -----------------------------------------------------------------------------------------------------
Avon Products, Inc. 57,500 $3,685,750
- -----------------------------------------------------------------------------------------------------
PepsiCo, Inc. 69,100 3,077,714
- -----------------------------------------------------------------------------------------------------
Procter & Gamble Co. 26,700 2,330,643
- -----------------------------------------------------------------------------------------------------
$9,094,107
- -----------------------------------------------------------------------------------------------------
Energy - 0.5%
- -----------------------------------------------------------------------------------------------------
Schlumberger Ltd. 23,700 $1,173,387
- -----------------------------------------------------------------------------------------------------
Financial Services - 15.7%
- -----------------------------------------------------------------------------------------------------
Ace Ltd. (Bermuda) 41,100 $1,323,420
- -----------------------------------------------------------------------------------------------------
American Express Co. 49,300 2,220,965
- -----------------------------------------------------------------------------------------------------
American International Group, Inc. 65,300 3,889,921
- -----------------------------------------------------------------------------------------------------
Citigroup, Inc. 117,100 5,076,285
- -----------------------------------------------------------------------------------------------------
Fannie Mae 52,300 3,388,517
- -----------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 47,800 4,229,822
- -----------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. 21,100 1,122,942
- -----------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 29,800 1,490,000
- -----------------------------------------------------------------------------------------------------
MBNA Corp. 59,800 1,395,732
- -----------------------------------------------------------------------------------------------------
Mellon Financial Corp. 57,600 1,805,760
- -----------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 87,100 4,684,238
- -----------------------------------------------------------------------------------------------------
Northern Trust Corp. 20,800 878,592
- -----------------------------------------------------------------------------------------------------
SLM Corp. 37,000 1,486,660
- -----------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., "A" 58,464 899,761
- -----------------------------------------------------------------------------------------------------
XL Capital Ltd. (Bermuda) 29,700 2,249,775
- -----------------------------------------------------------------------------------------------------
$36,142,390
- -----------------------------------------------------------------------------------------------------
Healthcare - 14.8%
- -----------------------------------------------------------------------------------------------------
Abbott Laboratories, Inc. 41,100 $1,656,330
- -----------------------------------------------------------------------------------------------------
AmerisourceBergen Corp. 16,000 931,360
- -----------------------------------------------------------------------------------------------------
Amgen, Inc.* 90,500 5,963,950
- -----------------------------------------------------------------------------------------------------
Boston Scientific Corp.* 16,500 991,650
- -----------------------------------------------------------------------------------------------------
Caremark Rx, Inc.* 38,400 964,992
- -----------------------------------------------------------------------------------------------------
Express Scripts, Inc.* 14,600 946,226
- -----------------------------------------------------------------------------------------------------
Forest Laboratories, Inc.* 30,600 1,438,200
- -----------------------------------------------------------------------------------------------------
Genentech, Inc.* 37,200 2,953,680
- -----------------------------------------------------------------------------------------------------
Genzyme Corp.* 29,100 1,372,065
- -----------------------------------------------------------------------------------------------------
Guidant Corp. 27,200 1,365,440
- -----------------------------------------------------------------------------------------------------
Johnson & Johnson Co. 58,300 2,890,514
- -----------------------------------------------------------------------------------------------------
Medtronic, Inc. 61,300 3,039,254
- -----------------------------------------------------------------------------------------------------
Pfizer, Inc. 208,400 6,235,328
- -----------------------------------------------------------------------------------------------------
Wyeth 78,500 3,363,725
- -----------------------------------------------------------------------------------------------------
$34,112,714
- -----------------------------------------------------------------------------------------------------
Industrial - 3.0%
- -----------------------------------------------------------------------------------------------------
General Electric Co. 194,200 $5,742,494
- -----------------------------------------------------------------------------------------------------
Northrop Grumman Corp. 10,900 1,040,732
- -----------------------------------------------------------------------------------------------------
$6,783,226
- -----------------------------------------------------------------------------------------------------
Leisure - 15.5%
- -----------------------------------------------------------------------------------------------------
AOL Time Warner, Inc.* 237,500 $3,885,500
- -----------------------------------------------------------------------------------------------------
Brinker International, Inc.* 31,700 1,084,140
- -----------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.* 110,300 4,976,736
- -----------------------------------------------------------------------------------------------------
Comcast Corp., "A"* 45,700 1,359,575
- -----------------------------------------------------------------------------------------------------
Comcast Corp., "Special A"* 49,800 1,412,328
- -----------------------------------------------------------------------------------------------------
Cox Communications, Inc., "A"* 39,300 1,285,896
- -----------------------------------------------------------------------------------------------------
InterActive Corp.* 67,900 2,512,979
- -----------------------------------------------------------------------------------------------------
Lamar Advertising Co.* 45,800 1,530,178
- -----------------------------------------------------------------------------------------------------
Liberty Media Corp.* 119,500 1,445,950
- -----------------------------------------------------------------------------------------------------
New York Times Co., "A" 43,500 1,930,965
- -----------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 28,400 1,097,660
- -----------------------------------------------------------------------------------------------------
Starbucks Corp.* 65,200 1,854,288
- -----------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Co. 62,500 2,114,375
- -----------------------------------------------------------------------------------------------------
Tribune Co. 43,400 2,007,250
- -----------------------------------------------------------------------------------------------------
Viacom, Inc., "B" 123,300 5,548,500
- -----------------------------------------------------------------------------------------------------
Westwood One, Inc.* 47,900 1,537,590
- -----------------------------------------------------------------------------------------------------
$35,583,910
- -----------------------------------------------------------------------------------------------------
Retail - 11.6%
- -----------------------------------------------------------------------------------------------------
CVS Corp. 24,500 $798,700
- -----------------------------------------------------------------------------------------------------
Home Depot, Inc. 119,100 3,830,256
- -----------------------------------------------------------------------------------------------------
Kohl's Corp.* 74,000 4,680,500
- -----------------------------------------------------------------------------------------------------
Staples, Inc.* 55,600 1,369,428
- -----------------------------------------------------------------------------------------------------
Target Corp. 110,400 4,482,240
- -----------------------------------------------------------------------------------------------------
The TJX Cos., Inc. 94,700 2,051,202
- -----------------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 107,200 6,343,024
- -----------------------------------------------------------------------------------------------------
Walgreen Co. 52,600 1,713,182
- -----------------------------------------------------------------------------------------------------
Williams-Sonoma, Inc.* 45,000 1,377,450
- -----------------------------------------------------------------------------------------------------
$26,645,982
- -----------------------------------------------------------------------------------------------------
Technology - 26.1%
- -----------------------------------------------------------------------------------------------------
Analog Devices, Inc.* 122,300 $5,014,300
- -----------------------------------------------------------------------------------------------------
Applied Materials, Inc.* 64,200 1,386,720
- -----------------------------------------------------------------------------------------------------
BEA Systems, Inc.* 53,000 718,150
- -----------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 435,300 8,335,995
- -----------------------------------------------------------------------------------------------------
Dell, Inc.* 130,500 4,258,215
- -----------------------------------------------------------------------------------------------------
Intel Corp. 108,600 3,108,132
- -----------------------------------------------------------------------------------------------------
International Business Machines Corp. 54,100 4,436,741
- -----------------------------------------------------------------------------------------------------
Linear Technology Corp. 55,400 2,283,588
- -----------------------------------------------------------------------------------------------------
Maxim Integrated Products, Inc. 50,600 2,272,446
- -----------------------------------------------------------------------------------------------------
Mercury Interactive Corp.* 32,900 1,443,981
- -----------------------------------------------------------------------------------------------------
Microchip Technology, Inc. 63,100 1,767,431
- -----------------------------------------------------------------------------------------------------
Microsoft Corp. 375,200 9,950,304
- -----------------------------------------------------------------------------------------------------
Networks Associates, Inc.* 68,000 946,560
- -----------------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 44,500 1,778,220
- -----------------------------------------------------------------------------------------------------
Oracle Corp.* 336,100 4,295,358
- -----------------------------------------------------------------------------------------------------
Texas Instruments, Inc. 81,500 1,943,775
- -----------------------------------------------------------------------------------------------------
VERITAS Software Corp.* 120,500 4,154,840
- -----------------------------------------------------------------------------------------------------
Xilinx, Inc.* 60,800 1,875,072
- -----------------------------------------------------------------------------------------------------
$59,969,828
- -----------------------------------------------------------------------------------------------------
Transportation - 0.9%
- -----------------------------------------------------------------------------------------------------
United Parcel Service, Inc. 32,400 $2,033,424
- -----------------------------------------------------------------------------------------------------
Other - 3.1%
- -----------------------------------------------------------------------------------------------------
BISYS Group, Inc.* 94,200 $1,728,570
- -----------------------------------------------------------------------------------------------------
Career Education Corp.* 26,200 1,182,406
- -----------------------------------------------------------------------------------------------------
DST Systems, Inc.* 24,900 986,040
- -----------------------------------------------------------------------------------------------------
First Data Corp. 21,200 814,080
- -----------------------------------------------------------------------------------------------------
SunGard Data Systems, Inc.* 84,600 2,385,720
- -----------------------------------------------------------------------------------------------------
$7,096,816
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $194,951,809) $226,432,448
- -----------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.8%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 9/02/03, at Amortized Cost $4,243 $4,242,901
- -----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 10.3%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Amortized Cost 23,586,483 $23,586,483
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $222,781,193) $254,261,832
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (10.7)% (24,593,665)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $229,668,167
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 8/31/03
ASSETS
Investments, at value, including $23,003,290 of securities
on loan (identified cost, $222,781,193) $254,261,832
- -----------------------------------------------------------------------------------------------------
Cash 948
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 275,872
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 333,703
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 170,572
- -----------------------------------------------------------------------------------------------------
Other assets 5,169
- -----------------------------------------------------------------------------------------------------
Total assets $255,048,096
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $1,398,648
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 179,098
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 23,586,483
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 13,978
- -----------------------------------------------------------------------------------------------------
Shareholders servicing agent fee 2,048
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 8,938
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 190,736
- -----------------------------------------------------------------------------------------------------
Total liabilities $25,379,929
- -----------------------------------------------------------------------------------------------------
Net assets $229,668,167
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $509,450,401
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 31,480,639
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (311,158,246)
- -----------------------------------------------------------------------------------------------------
Accumulated net investment loss (104,627)
- -----------------------------------------------------------------------------------------------------
Total $229,668,167
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 30,349,163
- -----------------------------------------------------------------------------------------------------
Class A shares
Net assets $180,237,406
- -----------------------------------------------------------------------------------------------------
Shares outstanding 23,793,153
- -----------------------------------------------------------------------------------------------------
Net asset value per share $7.58
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$7.58) $8.04
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
Net assets $45,981,861
- -----------------------------------------------------------------------------------------------------
Shares outstanding 6,101,454
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.54
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $1,199,165
- -----------------------------------------------------------------------------------------------------
Shares outstanding 160,848
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.46
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $2,249,735
- -----------------------------------------------------------------------------------------------------
Shares outstanding 293,708
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $7.66
- -----------------------------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
FOR YEAR ENDED 8/31/03
NET INVESTMENT LOSS
Income
- -----------------------------------------------------------------------------------------------------
Dividends $1,974,401
- -----------------------------------------------------------------------------------------------------
Interest 83,309
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (2,615)
- -----------------------------------------------------------------------------------------------------
Total investment income $2,055,095
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $1,646,560
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 20,256
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 228,866
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 598,432
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 453,248
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 11,664
- -----------------------------------------------------------------------------------------------------
Administrative fee 21,010
- -----------------------------------------------------------------------------------------------------
Custodian fee 93,691
- -----------------------------------------------------------------------------------------------------
Printing 59,806
- -----------------------------------------------------------------------------------------------------
Postage 55,287
- -----------------------------------------------------------------------------------------------------
Auditing fees 35,309
- -----------------------------------------------------------------------------------------------------
Legal fees 3,068
- -----------------------------------------------------------------------------------------------------
Miscellaneous 377,472
- -----------------------------------------------------------------------------------------------------
Total expenses $3,604,669
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (8,529)
- -----------------------------------------------------------------------------------------------------
Net expenses $3,596,140
- -----------------------------------------------------------------------------------------------------
Net investment loss $(1,541,045)
- -----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $(3,099,438)
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions (65)
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions $(3,099,503)
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation on investments $30,289,025
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency $27,189,522
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $25,648,477
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment loss $(1,541,045) $(3,381,232)
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (3,099,503) (88,656,293)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign
currency translation 30,289,025 18,649,752
- ----------------------------------------------------------- ------------- -------------
Increase (decrease) in net assets from operations $25,648,477 $(73,387,773)
- ----------------------------------------------------------- ------------- -------------
Net decrease in net assets from fund share transactions $(33,081,638) $(57,656,502)
- ----------------------------------------------------------- ------------- -------------
Total decrease in net assets $(7,433,161) $(131,044,275)
- ----------------------------------------------------------- ------------- -------------
NET ASSETS
At beginning of period $237,101,328 $368,145,603
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment loss
of $104,627 and $118,740, respectively) $229,668,167 $237,101,328
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years (or, if
shorter, the period of the fund's operation). Certain information reflects financial results for a single fund share. The total
returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund (assuming
reinvestment of all distributions). This information has been audited by the fund's independent auditors, whose report,
together with the fund's financial statements, are included in this report.
FOR YEARS ENDED 8/31
CLASS A 2003 2002 2001 2000 1999
Net asset value, beginning of period $6.70 $8.60 $21.45 $14.95 $11.06
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.04) $(0.07) $(0.06) $(0.11) $(0.08)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 0.92 (1.83) (9.44) 8.73 5.72
- ---------------------------------------------- ------ ------- ------- ------ ------
Total from investment operations $0.88 $(1.90) $(9.50) $8.62 $5.64
- ---------------------------------------------- ------ ------- ------- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments and
foreign currency transactions $-- $-- $(2.78) $(2.12) $(1.75)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.57) -- --
- ---------------------------------------------- ------ ------- ------- ------ ------
Total distributions declared to
shareholders $-- $-- $(3.35) $(2.12) $(1.75)
- ---------------------------------------------- ------ ------- ------- ------ ------
Net asset value, end of period $7.58 $6.70 $8.60 $21.45 $14.95
- ---------------------------------------------- ------ ------- ------- ------ ------
Total return (%)(+) 13.13(S) (22.09) (50.32) 60.26 54.92
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.51 1.46 1.36 1.32 1.36
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.57) (0.92) (0.43) (0.56) (0.57)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 282 319 495 334
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $180,237 $183,797 $276,026 $600,531 $326,805
- ------------------------------------------------------------------------------------------------------------------------------
# Per share data is based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
(S) The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as a
realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value
per share, total return for the year ended August 31, 2003 would have been 12.79%.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS B 2003 2002 2001 2000 1999
Net asset value, beginning of period $6.71 $8.67 $21.55 $15.04 $11.08
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.08) $(0.13) $(0.14) $(0.24) $(0.17)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 0.91 (1.83) (9.52) 8.78 5.75
- ---------------------------------------------- ------ ------- ------- ------ ------
Total from investment operations $0.83 $(1.96) $(9.66) $8.54 $5.58
- ---------------------------------------------- ------ ------- ------- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments and
foreign currency transactions $-- $-- $(2.68) $(2.03) $(1.62)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.54) -- --
- ---------------------------------------------- ------ ------- ------- ------ ------
Total distributions declared to
shareholders $-- $-- $(3.22) $(2.03) $(1.62)
- ---------------------------------------------- ------ ------- ------- ------ ------
Net asset value, end of period $7.54 $6.71 $8.67 $21.55 $15.04
- ---------------------------------------------- ------ ------- ------- ------ ------
Total return (%) 12.37(S) (22.61) (50.64) 59.15 53.89
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 2.16 2.11 2.01 1.97 2.01
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.22) (1.57) (1.08) (1.20) (1.22)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 282 319 495 334
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $45,982 $49,995 $87,876 $243,420 $127,024
- ------------------------------------------------------------------------------------------------------------------------------
# Per share data is based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(S) The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as a
realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value
per share, total return for the year ended August 31, 2003 would have been 12.02%.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
PERIOD ENDED
CLASS C 2003 2002 2001 8/31/00*
Net asset value, beginning of period $6.65 $8.57 $21.57 $19.62
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.08) $(0.13) $(0.12) $(0.08)
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 0.89 (1.79) (9.47) 2.03
- ---------------------------------------------------- ------ ------- ------- ------
Total from investment operations $0.81 $(1.92) $(9.59) $1.95
- ---------------------------------------------------- ------ ------- ------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments and
foreign currency transactions $-- $-- $(2.83) $--
- ------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.58) --
- ---------------------------------------------------- ------ ------- ------- ------
Total distributions declared to shareholders $-- $-- $(3.41) $--
- ---------------------------------------------------- ------ ------- ------- ------
Net asset value, end of period $7.46 $6.65 $8.57 $21.57
- ---------------------------------------------------- ------ ------- ------- ------
Total return (%) 12.18(S) (22.40) (50.62) 59.30++
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 2.16 2.11 2.01 1.97+
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.22) (1.57) (1.08) (1.53)+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 282 319 495
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,199 $1,240 $1,505 $1,022
- ------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class C shares, June 1, 2000 through August 31, 2000.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(S) The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded
as a realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net
asset value per share, total return for the year ended August 31, 2003 would have been 11.83%.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS I 2003 2002 2001 2000 1999
Net asset value, beginning of period $6.75 $8.64 $21.54 $14.99 $11.10
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.01) $(0.05) $(0.01) $(0.04) $(0.03)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 0.92 (1.84) (9.47) 8.76 5.72
- ---------------------------------------------- ------ ------- ------- ------ ------
Total from investment operations $0.91 $(1.89) $(9.48) $8.72 $5.69
- ---------------------------------------------- ------ ------- ------- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments and
foreign currency transactions $-- $-- $(2.84) $(2.17) $(1.80)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.58) -- --
- ---------------------------------------------- ------ ------- ------- ------ ------
Total distributions declared to
shareholders $-- $-- $(3.42) $(2.17) $(1.80)
- ---------------------------------------------- ------ ------- ------- ------ ------
Net asset value, end of period $7.66 $6.75 $8.64 $21.54 $14.99
- ---------------------------------------------- ------ ------- ------- ------ ------
Total return (%) 13.48(S) (21.88) (50.14) 60.76 55.45
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 1.16 1.11 1.01 0.97 1.01
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.22) (0.57) (0.08) (0.21) (0.21)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 282 319 495 334
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $2,250 $2,070 $2,739 $6,418 $2,829
- ------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(S) The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded
as a realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net
asset value per share, total return for the year ended August 31, 2003 would have been 13.13%.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Managed Sectors Fund (the fund) is a non-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
accounting principles generally accepted in the United States of America
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 in the fund's portfolio for which
market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Short-term obligations in the fund's portfolio
are valued at amortized cost, which constitutes fair value as determined by
the Board of Trustees. Short-term obligations with a remaining maturity in
excess of 60 days will be valued upon dealer-supplied valuations. Portfolio
investments for which market quotations are not readily available, or whose
values have been materially affected by events occurring after the close of
their primary markets, are valued at fair value as determined in good faith by
or at the direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize a
joint trading account for the purpose of entering into one or more
repurchase agreements.
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 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.
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 tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend 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. During the period, the fund's fees were reduced by $3,468 under this
arrangement. The fund has entered into a directed brokerage agreement, under
which the broker will credit the fund a portion of the commissions generated,
to offset certain expenses of the fund. For the period, the fund's other
expenses were reduced by $5,061 under this agreement. These amounts are 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. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions and real estate investment trusts.
The fund paid no distributions for the years ended August 31, 2003 and August
31, 2002.
During the year ended August 31, 2003, accumulated net investment loss
decreased by $1,555,158, accumulated net realized loss on investments and
foreign currency transactions decreased by $65 and paid-in capital decreased
by $1,555,223 due to differences between book and tax accounting for currency
transactions. This change had no effect on the net assets or net asset value
per share.
As of August 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(308,073,328)
------------------------------------------------------------
Unrealized appreciation 31,140,549
------------------------------------------------------------
Post-October capital loss deferral (2,744,828)
------------------------------------------------------------
Other temporary differences (104,627)
------------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration.
EXPIRATION DATE
August 31, 2009 $(18,916,162)
-----------------------------------------------------------
August 31, 2010 (209,919,760)
-----------------------------------------------------------
August 31, 2011 (79,237,406)
-----------------------------------------------------------
Total $(308,073,328)
-----------------------------------------------------------
Post-October capital loss deferrals represent losses realized during the
current fiscal year, but recognized for tax purposes in the next fiscal year.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses. Class B shares
will convert to Class A shares approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at the following annual
rates:
First $2.5 billion of average net assets 0.75%
---------------------------------------------------------
Average net assets in excess of $2.5 billion 0.70%
---------------------------------------------------------
The fund pays compensation to the Independent Trustees ("Trustees") in the
form of both a retainer and attendance fees, and 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).
On January 1, 2002, the Trustees terminated the Independent Trustee unfunded
defined benefit plan for active Trustees and converted it to an unfunded
retirement benefit deferral plan for active Trustees. Under the new plan, the
unfunded pension liability was converted into an equivalent value of notional
shares of the fund that will fluctuate with the performance of the fund.
Included in Trustees' compensation is a net decrease of $8,957
as a result of the change in the fund's pension liability under this plan
and a pension expense of $4,969 for inactive trustees for the year ended
August 31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
at the following annual percentages of the fund's average daily net assets:
First $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
$10,258 for the year ended August 31, 2003 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 an annual
percentage of its average daily net assets attributable to certain share
classes 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
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A CLASS B CLASS C
Distribution Fee 0.10% 0.75% 0.75%
- -------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- -------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00%
- -------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the year ended August 31, 2003 amounted to:
CLASS A CLASS B CLASS C
Service Fee Retained by MFD $14,579 $1,712 $7
- -------------------------------------------------------------------------------
Fees incurred under the distribution plan during the year ended August 31,
2003 were as follows:
CLASS A CLASS B CLASS C
Total Distribution Plan 0.35% 1.00% 1.00%
- -------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within, for class A shares, 12
months following the purchase, and, for Class C shares, the first year from
the end of the calendar month of 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 from the end of the calendar month of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended August 31, 2003 were
as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $906 $84,311 $287
- ------------------------------------------------------------------------------
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
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$156,082,715 and $184,415,625, 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 $223,121,283
-----------------------------------------------------------
Gross unrealized appreciation $32,757,823
-----------------------------------------------------------
Gross unrealized depreciation (1,617,274)
-----------------------------------------------------------
Net unrealized appreciation $31,140,549
-----------------------------------------------------------
(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:
Year ended 8/31/03 Year ended 8/31/02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 1,956,338 $12,960,002 2,574,992 $20,739,956
- -------------------------------------------------------------------------------
Shares reacquired (5,584,582) (36,876,148) (7,251,850) (57,471,194)
- -------------------------------------------------------------------------------
Net decrease (3,628,244) $(23,916,146) (4,676,858) $(36,731,238)
- -------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 818,965 $5,502,570 1,015,683 $8,226,342
- -------------------------------------------------------------------------------
Shares reacquired (2,166,390) (14,423,562) (3,705,553) (29,211,606)
- -------------------------------------------------------------------------------
Net decrease (1,347,425) $(8,920,992) (2,689,870) $(20,985,264)
- -------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 160,262 $1,068,677 267,945 $2,177,831
- -------------------------------------------------------------------------------
Shares reacquired (185,934) (1,225,803) (257,038) (2,030,922)
- -------------------------------------------------------------------------------
Net increase (decrease) (25,672) $(157,126) 10,907 $146,909
- -------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 26,922 $183,217 33,559 $268,927
- -------------------------------------------------------------------------------
Shares reacquired (39,742) (270,591) (44,142) (355,836)
- -------------------------------------------------------------------------------
Net decrease (12,820) $(87,374) (10,583) $(86,909)
- -------------------------------------------------------------------------------
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million 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, 2003 was $1,494. The fund had no borrowings during the year.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust I and the Shareholders of MFS Managed
Sectors Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Managed Sectors Fund (one of
the series comprising MFS Series Trust I) (the "Trust") as of August 31, 2003,
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 five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Trust'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 of America. 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. Our
procedures included confirmation of securities owned as of August 31, 2003, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. 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, such financial statements present fairly, in all material
respects, the financial position of MFS Managed Sectors Fund as of August 31,
2003, 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 its
financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 9, 2003
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust I, of
which the fund is a series, including their principal occupations, which, unless specific dates are shown, are
of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer, and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington
STEPHEN E. CAVAN (born 11/06/53) Funds, Treasurer (prior to September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company, Vice
STEPHANIE A. DESISTO (born 10/01/53) President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President (November Massachusetts Financial Services Company, Senior
2002 to April 2003); ING Groep N.V./Aeltus Vice President
Investment Management, Senior Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Cohn, Sherratt and Smith, and Ms. O'Neill, have served in their capacity as Trustee of the
Trust continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu, and
Ms. Smith, were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr.
Parke has served as Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIANS
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR JP Morgan Chase Manhattan Bank
MFS Fund Distributors, Inc. One Chase Manhattan Plaza
500 Boylston Street, Boston, MA New York, NY 10081
02116-3741
AUDITORS
PORTFOLIO MANAGERS Deloitte & Touche LLP
Margaret W. Adams(1)
S. Irfan Ali(1)
John E. Lathrop(1)
Stephen Pesek(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.
gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
MMS-ANN-10/03 61M
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/03
MFS(R) NEW DISCOVERY FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- -------------------------------------------------------------------------------
MFS(R) NEW DISCOVERY FUND
Seeks capital appreciation.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 9
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ----------------------------------------------------
FINANCIAL STATEMENTS 23
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 34
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT 42
- ----------------------------------------------------
TRUSTEES AND OFFICERS 43
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES
OF INVESTORS 45
- ----------------------------------------------------
FEDERAL TAX INFORMATION 46
- ----------------------------------------------------
CONTACT INFORMATION 47
- -------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
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
MFS Investment Management(R)
September 15, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- --------------------------------------------------------------------------------
MANAGEMENT REVIEW
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
The 12-month period ended August 31, 2003, proved volatile but rewarding for
long-term investors. As the economy and the stock market appeared to turn a
corner into recovery, small-cap growth stocks, as represented by the fund's
benchmark, the Russell 2000 Growth Index, outperformed the broad market, as
represented by the Standard & Poor's 500 Stock Index. The indices returned
34.90% and 12.07%, respectively.
In retrospect, the stock market appears to have bottomed in the September 2002
to March 2003 time frame, driven down largely by a weak economy, corporate
scandals, and geopolitical uncertainty over Iraq and North Korea. As major
fighting ended in Iraq and investors became more confident in the market,
stocks began to rise - both in anticipation of an accelerating economic
recovery and in response to real improvements in business fundamentals (such
as earnings and cash flow growth).
Beginning in late 2002, we had begun to restructure the portfolio. We felt
that, as the economy strengthened further, corporate capital expenditure (cap-
ex) spending would increase and the market would increasingly favor companies
that stood to benefit from increased cap-ex spending - such as firms in the
technology and industrial goods and services sectors. We also felt that growth
in consumer spending, which had largely driven the U.S. economy for the past
three years, could taper off somewhat. Accordingly, we decreased the fund's
exposure to retail and consumer staples stocks over the period, and increased
our technology holdings.
- -------------------------------------------------
TOP 5 STOCK HOLDINGS
AS OF 8/31/03
CAREMARK RX, INC. 2.5%
Pharmaceutical benefits management
firm
- -------------------------------------------------
CAREER EDUCATION CORP. 1.7%
For-profit provider of post-secondary
education
- -------------------------------------------------
KRONOS, INC. 1.5%
Provider of software-based employee
management systems
- -------------------------------------------------
STRAYER EDUCATION, INC. 1.4%
For-profit provider of post-secondary
education
- -------------------------------------------------
OPEN TEXT CORP. 1.3%
Developer of knowledge management
software
- -------------------------------------------------
The portfolio is actively managed, and current
holdings may be different.
- -------------------------------------------------
DETRACTORS FROM PERFORMANCE
We think the fund's underperformance over the period, relative to its Russell
2000 Growth benchmark and its Lipper small-cap growth peers, can be attributed
in part to the character of the second-quarter 2003 rally. In general, we felt
some of the better-performing stocks over the period were higher-volatility,
more risky issues. Many were stocks that had fallen to extremely low prices
before the market appeared to bottom and then delivered strong performance off
of that bottom. Most of those stocks did not fit the fund's strategy of
investing in firms that we feel have strong long-term business fundamentals.
While sticking with our strategy hurt performance over the period, we believe
that avoiding stocks with relatively weak fundamentals helps our shareholders
over the longer term.
More specifically, we were late in participating in a powerful second-quarter
rally in the technology sector. We generally do not like to invest in a
company until we have confidence that its fundamentals are likely to improve,
and many of the technology firms that led the rally were companies in which we
had no long-term confidence.
However, while our technology holdings as a group underperformed on a relative
basis, many delivered strong results over the period; in fact, three of the
fund's five top performing holdings were in the sector. Lexar Media's stock
rose sharply on strong demand for the firm's removable storage media for
digital cameras. GlobespanVirata increased its share of the market for
semiconductor chips used in DSL (digital subscriber line) broadband internet
systems. The position in GlobespanVirata has since been eliminated from the
portfolio. And Avid Technology continued to be a market leader in digital
editing equipment for the film and broadcasting industries.
Leisure sector holdings also detracted from performance. Despite the success
of its Harry Potter franchise, Scholastic Corp.'s stock tumbled because the
weak economy hurt sales of children's books, especially at school book fairs.
Our stake in Jack in the Box declined in value as the fast food restaurant
firm's turnaround efforts proved disappointing. We sold both holdings by
period-end. Elsewhere in the sector, our radio broadcasting stocks
underperformed because local radio advertising did not recover as quickly as
expected after major fighting concluded in Iraq.
Health care was another area that held back performance. Much of the market's
strong performance in the sector came from rather speculative biotechnology
stocks, and we were underweighted in that industry. In addition, our holdings
in LifePoint Hospitals, a group of rural hospitals, and AMN Healthcare, a
provider of temporary nursing services, declined in price and were sold out of
the fund.
CONTRIBUTORS TO PERFORMANCE
In the financial services sector, relative performance was helped by a
general avoidance of several areas that performed poorly, particularly banks,
whose profits were hurt by low interest rates, and insurance brokers. In
addition, we owned a few selected banks that did well because they were in
high-growth markets, such as California-based UCBH Holdings, which focused on
Chinese-American clients and began expanding into New York. We also owned some
brokerage firms that profited from increased market activity. Chief among the
latter was Friedman Billings Ramsey, an investment banking and brokerage firm.
In the consumer staples area, the fund benefited from a lower allocation
to the sector, as the market rotated away from defensive stocks and began
to favor more aggressive issues. Similarly, the fund's outperformance
in the basic materials sector was largely due to low allocation to a sector
that underperformed.
The fund's strongest performing holdings over the period were spread across a
variety of sectors. In addition to the technology companies mentioned earlier,
contributors to performance included adult education firms Career Education
and Strayer Education. These companies saw increasing enrollment rates and
benefited from the weak employment environment in the United States, as they
offered workers opportunities to increase job-related knowledge and skills. In
the health care area, our long-time holding in pharmaceutical benefits manager
Caremark Rx performed well. The firm manages prescription drug
benefits for employers in order to hold down the cost of health insurance. And
in the leisure sector, stock in educational toy company Leapfrog Enterprises
rose on the success of a new product line.
Respectfully,
/s/ Robert A. Henderson /s/ Donald F. Pitcher, Jr.
Robert A. Henderson Donald F. Pitcher, Jr.
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 8/31/03
- -------------------------------------------------------------------------------
The following information illustrates the historical performance of the fund's
original share class in comparison to its benchmarks. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including the reinvestment of any
dividends and capital gains distributions. 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. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS. (See Notes to Performance Summary.)
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, 2003. Index information is from January 2,
1997.)
Russell 2000 MFS New Discovery
Growth Index# Fund - Class A
-----------------------------------------------
1/97 $10,000 $ 9,425
8/97 11,394 12,318
8/99 12,033 16,222
8/01 10,887 22,242
8/03 10,865 20,042
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 1-yr 3-yr 5-yr Life*
A 1/2/1997 21.52% -11.23% 11.33% 11.99%
- ------------------------------------------------------------------------------
B 11/3/1997 20.77% -11.81% 10.61% 11.37%
- ------------------------------------------------------------------------------
C 11/3/1997 20.73% -11.81% 10.62% 11.39%
- ------------------------------------------------------------------------------
I 1/2/1997 21.90% -10.92% 11.74% 12.38%
- ------------------------------------------------------------------------------
R 12/31/2002 21.52% -11.23% 11.33% 11.99%
- ------------------------------------------------------------------------------
529A 7/31/2002 21.18% -11.31% 11.27% 11.95%
- ------------------------------------------------------------------------------
529B 7/31/2002 20.43% -11.52% 11.12% 11.83%
- ------------------------------------------------------------------------------
529C 7/31/2002 20.31% -11.55% 11.09% 11.82%
- --------------------
Average annual
- --------------------
Comparative Benchmarks
Average small cap growth fund+ 28.46% -12.96% 8.99% 4.91%
- ------------------------------------------------------------------------------
Russell 2000 Growth Index# 34.90% -13.41% 5.29% 1.25%
- --------------------
Average annual
with sales charge
- --------------------
Share class 1-yr 3-yr 5-yr Life*
A 14.53% -12.97% 10.02% 11.00%
- ------------------------------------------------------------------------------
B 16.77% -12.56% 10.34% 11.37%
- ------------------------------------------------------------------------------
C 19.73% -11.81% 10.62% 11.39%
- ------------------------------------------------------------------------------
529A 14.22% -13.05% 9.96% 10.96%
- ------------------------------------------------------------------------------
529B 16.43% -12.25% 10.85% 11.83%
- ------------------------------------------------------------------------------
529C 19.31% -11.55% 11.09% 11.82%
I and R class shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
A 21.52% -30.05% 71.04% 112.65%
- ------------------------------------------------------------------------------
B 20.77% -31.42% 65.57% 104.88%
- ------------------------------------------------------------------------------
C 20.73% -31.41% 65.61% 105.13%
- ------------------------------------------------------------------------------
I 21.90% -29.32% 74.19% 117.58%
- ------------------------------------------------------------------------------
R 21.52% -30.05% 71.04% 112.65%
- ------------------------------------------------------------------------------
529A 21.18% -30.24% 70.57% 112.06%
- ------------------------------------------------------------------------------
529B 20.43% -30.72% 69.39% 110.60%
- ------------------------------------------------------------------------------
529C 20.31% -30.79% 69.22% 110.39%
* For the period from the commencement of the fund's investment operations,
January 2, 1997, through August 31, 2003. Index information is from
January 2, 1997.
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
RUSSELL 2000 GROWTH INDEX - measures the performance of U.S. small-cap growth
stocks.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results, including sales charge, reflects the deduction of
the maximum 5.75% sales charge. Class B and 529B results, including sales
charge, reflects the deduction of the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C and 529C
results, including sales charge, redeemed within one year from the end of the
calendar month of purchase reflects the deduction of the 1% CDSC. Class I
shares have no sales charges and are available only to certain investors.
Class R shares have no sales charges and are available only to certain
retirement plans. Class 529A, 529B, and 529C shares are only available in
conjunction with qualified tuition programs, such as the MFS 529
Savings Plan.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
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 and financial statements for details. All
results are historical and assume the reinvestment of dividends and capital
gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
Investing in small and/or emerging growth companies is riskier than investing
in more-established companies.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- -------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 8/31/03
- -------------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized
by broad-based asset classes.
Stocks - 95.4%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - 90.9%
- -----------------------------------------------------------------------------------------------------
Airlines - 0.9%
- -----------------------------------------------------------------------------------------------------
Airtran Holdings, Inc.* 75,900 $1,019,337
- -----------------------------------------------------------------------------------------------------
Alaska Air Group, Inc.* 119,700 3,302,523
- -----------------------------------------------------------------------------------------------------
Atlantic Coast Airlines Holdings* 334,600 2,673,454
- -----------------------------------------------------------------------------------------------------
Frontier Airlines, Inc.* 76,800 1,228,800
- -----------------------------------------------------------------------------------------------------
Mesa Air Group, Inc.* 201,500 2,391,805
- -----------------------------------------------------------------------------------------------------
Skywest, Inc. 100,800 1,761,984
- -----------------------------------------------------------------------------------------------------
$12,377,903
- -----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.7%
- -----------------------------------------------------------------------------------------------------
Reebok International Ltd. 232,500 $7,777,125
- -----------------------------------------------------------------------------------------------------
Wolverine World Wide, Inc. 117,000 2,351,700
- -----------------------------------------------------------------------------------------------------
$10,128,825
- -----------------------------------------------------------------------------------------------------
Banks & Credit Companies - 2.7%
- -----------------------------------------------------------------------------------------------------
Alabama National Bancorp. 41,400 $2,096,910
- -----------------------------------------------------------------------------------------------------
BankUnited Financial Corp., "A"* 194,100 4,219,734
- -----------------------------------------------------------------------------------------------------
Brookline Bancorp, Inc. 151,388 2,314,723
- -----------------------------------------------------------------------------------------------------
Citizens South Banking Corp. 41,100 608,280
- -----------------------------------------------------------------------------------------------------
East West Bancorp, Inc. 99,900 4,431,564
- -----------------------------------------------------------------------------------------------------
First Community Bancorp. 44,390 1,511,479
- -----------------------------------------------------------------------------------------------------
Glacier Bancorp, Inc. 33,420 904,345
- -----------------------------------------------------------------------------------------------------
Harbor Florida Bancshares, Inc. 124,900 3,207,432
- -----------------------------------------------------------------------------------------------------
Independence Community Bank Corp. 49,100 1,622,755
- -----------------------------------------------------------------------------------------------------
Investors Financial Services Corp. 217,600 6,504,064
- -----------------------------------------------------------------------------------------------------
Republic Bancshares, Inc. 57,500 1,559,975
- -----------------------------------------------------------------------------------------------------
UCBH Holdings, Inc. 251,000 8,029,490
- -----------------------------------------------------------------------------------------------------
Wintrust Financial Corp. 51,100 1,806,896
- -----------------------------------------------------------------------------------------------------
$38,817,647
- -----------------------------------------------------------------------------------------------------
Biotechnology - 3.2%
- -----------------------------------------------------------------------------------------------------
Antigenics, Inc.* 220,290 $3,114,901
- -----------------------------------------------------------------------------------------------------
Bruker Biosciences Corp.* 341,200 1,569,520
- -----------------------------------------------------------------------------------------------------
CryoLife, Inc.* 553,000 3,096,800
- -----------------------------------------------------------------------------------------------------
CV Therapeutics, Inc.* 85,200 2,185,380
- -----------------------------------------------------------------------------------------------------
Exact Sciences Corp.* 221,000 3,721,640
- -----------------------------------------------------------------------------------------------------
ICOS Corp.* 90,500 3,524,070
- -----------------------------------------------------------------------------------------------------
ILEX Oncology, Inc.* 98,700 1,640,394
- -----------------------------------------------------------------------------------------------------
InterMune, Inc.* 176,330 3,357,323
- -----------------------------------------------------------------------------------------------------
Millipore Corp.* 235,100 10,673,540
- -----------------------------------------------------------------------------------------------------
Neurocrine Biosciences, Inc.* 92,600 4,955,026
- -----------------------------------------------------------------------------------------------------
Serologicals Corp.* 376,200 5,229,180
- -----------------------------------------------------------------------------------------------------
Tanox, Inc.* 85,600 1,899,464
- -----------------------------------------------------------------------------------------------------
Vertex Pharmaceuticals, Inc.* 149,100 1,878,660
- -----------------------------------------------------------------------------------------------------
$46,845,898
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.8%
- -----------------------------------------------------------------------------------------------------
aQuantive, Inc.* 465,000 $4,994,100
- -----------------------------------------------------------------------------------------------------
Arbitron, Inc.* 68,800 2,544,224
- -----------------------------------------------------------------------------------------------------
Citadel Broadcasting Corp.* 100,000 2,208,000
- -----------------------------------------------------------------------------------------------------
Cox Radio, Inc., "A"* 359,900 8,687,986
- -----------------------------------------------------------------------------------------------------
Cumulus Media, Inc., "A"* 77,700 1,473,969
- -----------------------------------------------------------------------------------------------------
Emmis Communications Corp., "A"* 250,000 5,362,500
- -----------------------------------------------------------------------------------------------------
Entercom Communications Corp., "A"* 213,315 10,736,144
- -----------------------------------------------------------------------------------------------------
Hearst-Argyle Television, Inc.* 195,900 4,752,534
- -----------------------------------------------------------------------------------------------------
LIN TV Corp., "A"* 395,600 9,257,040
- -----------------------------------------------------------------------------------------------------
Saga Communications, Inc., "A" 152,300 2,886,085
- -----------------------------------------------------------------------------------------------------
Spanish Broadcasting Systems, Inc.* 300,000 2,325,000
- -----------------------------------------------------------------------------------------------------
$55,227,582
- -----------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.9%
- -----------------------------------------------------------------------------------------------------
Affiliated Managers Group, Inc.* 201,000 $13,627,800
- -----------------------------------------------------------------------------------------------------
Federated Investors, Inc., "B" 100,000 2,936,000
- -----------------------------------------------------------------------------------------------------
First Albany Cos., Inc. 61,100 823,628
- -----------------------------------------------------------------------------------------------------
Friedman Billings Ramsey Group, "A" 504,515 8,369,904
- -----------------------------------------------------------------------------------------------------
Jeffries Group, Inc. 221,800 6,587,460
- -----------------------------------------------------------------------------------------------------
Knight Trading Group, Inc.* 229,100 2,123,757
- -----------------------------------------------------------------------------------------------------
Raymond James Financial, Inc. 171,200 6,123,824
- -----------------------------------------------------------------------------------------------------
Soundview Technology Group, Inc.* 249,860 2,641,020
- -----------------------------------------------------------------------------------------------------
SWS Group, Inc. 224,300 4,239,270
- -----------------------------------------------------------------------------------------------------
Waddell & Reed Financial, Inc., "A" 364,600 9,388,450
- -----------------------------------------------------------------------------------------------------
$56,861,113
- -----------------------------------------------------------------------------------------------------
Business Services - 4.7%
- -----------------------------------------------------------------------------------------------------
BISYS Group, Inc.* 150,000 $2,752,500
- -----------------------------------------------------------------------------------------------------
Bright Horizons Family Solutions, Inc.* 133,800 5,210,172
- -----------------------------------------------------------------------------------------------------
Charles River Associates, Inc.* 55,020 1,850,873
- -----------------------------------------------------------------------------------------------------
Corporate Executive Board Co.* 237,500 10,485,625
- -----------------------------------------------------------------------------------------------------
Costar Group, Inc.* 208,000 6,192,160
- -----------------------------------------------------------------------------------------------------
Diamondcluster International, Inc., "A"* 337,100 2,022,600
- -----------------------------------------------------------------------------------------------------
Digitas, Inc.* 1,013,650 6,943,502
- -----------------------------------------------------------------------------------------------------
EPIQ Systems, Inc.* 42,300 782,973
- -----------------------------------------------------------------------------------------------------
Global Payments, Inc. 321,949 12,153,575
- -----------------------------------------------------------------------------------------------------
Integrated Alarm Services Group, Inc.* 637,110 5,542,857
- -----------------------------------------------------------------------------------------------------
MPS Group, Inc.* 696,200 6,648,710
- -----------------------------------------------------------------------------------------------------
Perot Systems Corp., "A"* 717,350 7,360,011
- -----------------------------------------------------------------------------------------------------
$67,945,558
- -----------------------------------------------------------------------------------------------------
Computer Software - 10.0%
- -----------------------------------------------------------------------------------------------------
ANSYS, Inc.* 339,700 $12,025,380
- -----------------------------------------------------------------------------------------------------
Autodesk, Inc.* 182,800 3,272,120
- -----------------------------------------------------------------------------------------------------
Borland Software Corp.* 605,500 5,746,195
- -----------------------------------------------------------------------------------------------------
Cadence Design Systems, Inc.* 400,000 5,688,000
- -----------------------------------------------------------------------------------------------------
Getty Images, Inc.* 379,500 15,483,600
- -----------------------------------------------------------------------------------------------------
Hyperion Solutions Corp.* 164,500 5,425,210
- -----------------------------------------------------------------------------------------------------
InterVideo, Inc.* 322,720 8,648,896
- -----------------------------------------------------------------------------------------------------
Kronos, Inc.* 355,200 20,528,074
- -----------------------------------------------------------------------------------------------------
Magma Design Automation, Inc.* 179,300 3,783,230
- -----------------------------------------------------------------------------------------------------
Microstrategy, Inc., "A"* 81,900 3,313,674
- -----------------------------------------------------------------------------------------------------
Netscreen Technologies, Inc.* 449,400 10,754,142
- -----------------------------------------------------------------------------------------------------
Networks Associates, Inc.* 1,291,100 17,972,112
- -----------------------------------------------------------------------------------------------------
Portal Software, Inc.* 1,239,500 3,532,575
- -----------------------------------------------------------------------------------------------------
Progress Software Corp.* 392,200 8,055,788
- -----------------------------------------------------------------------------------------------------
Safenet, Inc.* 123,700 4,458,148
- -----------------------------------------------------------------------------------------------------
Secure Computing Corp.* 558,800 6,085,332
- -----------------------------------------------------------------------------------------------------
Serena Software, Inc.* 357,000 6,925,800
- -----------------------------------------------------------------------------------------------------
Verity, Inc.* 259,500 3,093,240
- -----------------------------------------------------------------------------------------------------
Vignette Corp.* 271,300 623,990
- -----------------------------------------------------------------------------------------------------
$145,415,506
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.0%
- -----------------------------------------------------------------------------------------------------
Acxiom Corp.* 349,000 $5,639,840
- -----------------------------------------------------------------------------------------------------
Arrow Electronics, Inc.* 74,500 1,537,680
- -----------------------------------------------------------------------------------------------------
BearingPoint, Inc.* 325,100 2,665,820
- -----------------------------------------------------------------------------------------------------
Manhattan Associates, Inc.* 532,300 15,772,049
- -----------------------------------------------------------------------------------------------------
Mentor Graphics Corp. 50,200 1,015,546
- -----------------------------------------------------------------------------------------------------
SS&C Technologies, Inc. 117,500 2,231,325
- -----------------------------------------------------------------------------------------------------
$28,862,260
- -----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.1%
- -----------------------------------------------------------------------------------------------------
The Yankee Candle Co., Inc.* 79,900 $1,873,655
- -----------------------------------------------------------------------------------------------------
Consumer Services - 5.3%
- -----------------------------------------------------------------------------------------------------
Autobytel, Inc.*+ 578,900 $4,909,072
- -----------------------------------------------------------------------------------------------------
Autobytel, Inc.* 50,000 425,500
- -----------------------------------------------------------------------------------------------------
Career Education Corp.* 536,800 24,225,784
- -----------------------------------------------------------------------------------------------------
Corinthian Colleges, Inc.* 75,000 4,316,250
- -----------------------------------------------------------------------------------------------------
Education Management Corp.* 172,300 10,537,868
- -----------------------------------------------------------------------------------------------------
ITT Educational Services, Inc.* 147,700 6,402,795
- -----------------------------------------------------------------------------------------------------
Priceline.com, Inc.* 186,416 7,361,568
- -----------------------------------------------------------------------------------------------------
Strayer Education, Inc. 203,800 19,462,900
- -----------------------------------------------------------------------------------------------------
$77,641,737
- -----------------------------------------------------------------------------------------------------
Electrical Equipment - 0.9%
- -----------------------------------------------------------------------------------------------------
A.O. Smith Corp. 124,100 $4,455,190
- -----------------------------------------------------------------------------------------------------
Baldor Electric Co. 60,300 1,339,866
- -----------------------------------------------------------------------------------------------------
Mettler-Toledo International, Inc.* 206,430 7,949,619
- -----------------------------------------------------------------------------------------------------
$13,744,675
- -----------------------------------------------------------------------------------------------------
Electronics - 12.3%
- -----------------------------------------------------------------------------------------------------
Advanced Energy Industries, Inc.* 177,900 $4,280,274
- -----------------------------------------------------------------------------------------------------
American Superconductor Corp.* 380,132 4,633,809
- -----------------------------------------------------------------------------------------------------
Amphenol Corp.* 199,700 10,889,641
- -----------------------------------------------------------------------------------------------------
Applied Micro Circuits Corp.* 1,341,900 7,796,439
- -----------------------------------------------------------------------------------------------------
Brooks Automation, Inc.* 305,400 7,467,030
- -----------------------------------------------------------------------------------------------------
Cabot Microelectronics Corp.* 50,000 3,259,500
- -----------------------------------------------------------------------------------------------------
Cree, Inc.* 328,400 5,195,288
- -----------------------------------------------------------------------------------------------------
Cymer, Inc.* 257,200 11,772,044
- -----------------------------------------------------------------------------------------------------
Cypress Semiconductor Corp.* 607,500 11,281,275
- -----------------------------------------------------------------------------------------------------
Digital Theater Systems, Inc.* 36,540 816,304
- -----------------------------------------------------------------------------------------------------
DSP Group, Inc.* 185,934 5,061,123
- -----------------------------------------------------------------------------------------------------
Exar Corp.* 218,700 3,575,745
- -----------------------------------------------------------------------------------------------------
Excel Technology, Inc.* 90,700 2,473,389
- -----------------------------------------------------------------------------------------------------
Genus, Inc.* 265,900 877,470
- -----------------------------------------------------------------------------------------------------
Integrated Circuit Systems, Inc.* 174,400 6,020,288
- -----------------------------------------------------------------------------------------------------
Integrated Device Technology, Inc.* 392,500 5,475,375
- -----------------------------------------------------------------------------------------------------
Kemet Corp. 31,200 382,512
- -----------------------------------------------------------------------------------------------------
Kopin Corp.* 571,700 4,979,507
- -----------------------------------------------------------------------------------------------------
Lam Research Corp.* 200,000 5,144,000
- -----------------------------------------------------------------------------------------------------
Lexar Media, Inc.* 496,900 8,288,292
- -----------------------------------------------------------------------------------------------------
Micrel, Inc.* 793,300 10,788,880
- -----------------------------------------------------------------------------------------------------
MKS Instruments, Inc.* 232,100 6,387,392
- -----------------------------------------------------------------------------------------------------
OmniVision Technologies, Inc.* 48,080 2,134,271
- -----------------------------------------------------------------------------------------------------
Pemstar, Inc.* 311,170 1,042,420
- -----------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.* 83,800 2,715,958
- -----------------------------------------------------------------------------------------------------
PMC-Sierra, Inc.* 488,200 6,961,732
- -----------------------------------------------------------------------------------------------------
Silicon Laboratories, Inc.* 226,800 10,072,188
- -----------------------------------------------------------------------------------------------------
Technitrol, Inc.* 274,900 5,558,478
- -----------------------------------------------------------------------------------------------------
Ultratech, Inc.* 129,800 3,807,034
- -----------------------------------------------------------------------------------------------------
Vishay Intertechnology, Inc.* 400,000 6,588,000
- -----------------------------------------------------------------------------------------------------
Vitesse Semiconductor Corp.* 715,100 4,884,133
- -----------------------------------------------------------------------------------------------------
White Electronic Designs Corp.* 373,700 4,529,244
- -----------------------------------------------------------------------------------------------------
Zoran Corp.* 145,800 3,639,168
- -----------------------------------------------------------------------------------------------------
$178,778,203
- -----------------------------------------------------------------------------------------------------
Energy - Independent - 0.6%
- -----------------------------------------------------------------------------------------------------
Newfield Exploration Co.* 230,196 $9,044,401
- -----------------------------------------------------------------------------------------------------
Food & Non Alcoholic Beverages - 0.4%
- -----------------------------------------------------------------------------------------------------
Performance Food Group, Co.* 153,800 $6,030,498
- -----------------------------------------------------------------------------------------------------
Furniture & Appliances - 0.8%
- -----------------------------------------------------------------------------------------------------
Harman International Industries, Inc. 65,000 $6,477,250
- -----------------------------------------------------------------------------------------------------
Select Comfort Corp.* 196,300 4,571,827
- -----------------------------------------------------------------------------------------------------
$11,049,077
- -----------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.4%
- -----------------------------------------------------------------------------------------------------
Prime Hospitality Corp.* 700,000 $6,265,000
- -----------------------------------------------------------------------------------------------------
Home Construction - 0.1%
- -----------------------------------------------------------------------------------------------------
Florida Rock Industries, Inc. 33,100 $1,719,545
- -----------------------------------------------------------------------------------------------------
Insurance - 0.1%
- -----------------------------------------------------------------------------------------------------
CCC Information Services Group, Inc.* 106,200 $1,633,356
- -----------------------------------------------------------------------------------------------------
Internet - 1.6%
- -----------------------------------------------------------------------------------------------------
Digital River, Inc.* 583,210 $15,560,043
- -----------------------------------------------------------------------------------------------------
Earthlink, Inc.* 288,000 2,185,920
- -----------------------------------------------------------------------------------------------------
eCollege.com, Inc.* 172,800 2,376,000
- -----------------------------------------------------------------------------------------------------
GSI Commerce, Inc.* 86,300 1,035,600
- -----------------------------------------------------------------------------------------------------
LookSmart Ltd.* 465,900 1,514,175
- -----------------------------------------------------------------------------------------------------
$22,671,738
- -----------------------------------------------------------------------------------------------------
Leisure & Toys - 0.2%
- -----------------------------------------------------------------------------------------------------
Leapfrog Enterprises, Inc.* 80,000 $3,000,000
- -----------------------------------------------------------------------------------------------------
Machinery & Tools - 0.5%
- -----------------------------------------------------------------------------------------------------
Cognex Corp. 200,000 $6,132,000
- -----------------------------------------------------------------------------------------------------
NN, Inc. 111,200 1,417,800
- -----------------------------------------------------------------------------------------------------
$7,549,800
- -----------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 6.0%
- -----------------------------------------------------------------------------------------------------
Apria Healthcare Group, Inc.* 416,425 $10,785,407
- -----------------------------------------------------------------------------------------------------
Caremark Rx, Inc.* 1,376,195 34,583,780
- -----------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.* 100,000 3,922,000
- -----------------------------------------------------------------------------------------------------
Lincare Holdings, Inc.* 176,760 6,121,199
- -----------------------------------------------------------------------------------------------------
Odyssey Healthcare, Inc.* 64,050 1,961,852
- -----------------------------------------------------------------------------------------------------
Select Medical Corp.* 200,000 5,760,000
- -----------------------------------------------------------------------------------------------------
Sunrise Senior Living, Inc.* 173,000 4,318,080
- -----------------------------------------------------------------------------------------------------
The Advisory Board Co.* 287,900 12,264,540
- -----------------------------------------------------------------------------------------------------
VCA Antech, Inc.* 326,400 7,520,256
- -----------------------------------------------------------------------------------------------------
$87,237,114
- -----------------------------------------------------------------------------------------------------
Medical Equipment - 5.4%
- -----------------------------------------------------------------------------------------------------
Conceptus, Inc.* 107,800 $1,747,438
- -----------------------------------------------------------------------------------------------------
Cyberonics, Inc.* 383,800 10,566,014
- -----------------------------------------------------------------------------------------------------
Dade Behring Holdings, Inc.* 318,100 8,874,990
- -----------------------------------------------------------------------------------------------------
Edwards Lifesciences Corp.* 223,800 6,364,872
- -----------------------------------------------------------------------------------------------------
Fischer Imaging Corp.* 136,300 388,455
- -----------------------------------------------------------------------------------------------------
Hologic, Inc.* 537,000 8,860,500
- -----------------------------------------------------------------------------------------------------
IDEXX Laboratories, Inc.* 182,265 7,584,046
- -----------------------------------------------------------------------------------------------------
Molecular Devices Corp.* 392,240 7,609,456
- -----------------------------------------------------------------------------------------------------
Nektar Therapeutics* 755,200 8,662,144
- -----------------------------------------------------------------------------------------------------
StAAR Surgical Co.* 100,000 1,205,000
- -----------------------------------------------------------------------------------------------------
Thoratec Corp.* 398,600 5,982,986
- -----------------------------------------------------------------------------------------------------
Viasys Healthcare, Inc.* 103,640 2,290,444
- -----------------------------------------------------------------------------------------------------
Wilson Great Batch Technologies, Inc.* 215,610 8,531,688
- -----------------------------------------------------------------------------------------------------
$78,668,033
- -----------------------------------------------------------------------------------------------------
Oil Services - 2.7%
- -----------------------------------------------------------------------------------------------------
Cal Dive International, Inc.* 100,000 $2,115,000
- -----------------------------------------------------------------------------------------------------
Dril-Quip, Inc.* 379,263 7,118,767
- -----------------------------------------------------------------------------------------------------
Grey Wolf, Inc.* 125,400 475,266
- -----------------------------------------------------------------------------------------------------
National-Oilwell, Inc.* 128,350 2,513,093
- -----------------------------------------------------------------------------------------------------
Pride International, Inc.* 434,460 7,424,921
- -----------------------------------------------------------------------------------------------------
Rowan Cos., Inc.* 402,400 10,076,096
- -----------------------------------------------------------------------------------------------------
Trico Marine Services, Inc.* 350,000 791,000
- -----------------------------------------------------------------------------------------------------
Varco International, Inc.* 509,550 8,789,737
- -----------------------------------------------------------------------------------------------------
$39,303,880
- -----------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.0%
- -----------------------------------------------------------------------------------------------------
Avid Technology, Inc.* 362,700 $18,008,055
- -----------------------------------------------------------------------------------------------------
Dot Hill Systems Corp.* 160,200 2,659,320
- -----------------------------------------------------------------------------------------------------
Ingram Micro, Inc.* 372,600 5,272,290
- -----------------------------------------------------------------------------------------------------
Sigma Designs, Inc.* 106,600 979,654
- -----------------------------------------------------------------------------------------------------
Synaptics, Inc.* 148,900 1,786,800
- -----------------------------------------------------------------------------------------------------
$28,706,119
- -----------------------------------------------------------------------------------------------------
Pharmaceuticals - 2.1%
- -----------------------------------------------------------------------------------------------------
Atherogenics, Inc.* 95,900 $1,305,199
- -----------------------------------------------------------------------------------------------------
Inspire Phamaceutical, Inc.* 541,900 7,938,835
- -----------------------------------------------------------------------------------------------------
Medicis Pharmaceutical Corp. 109,550 6,691,314
- -----------------------------------------------------------------------------------------------------
Pharmaceutical Product Development, Inc.* 451,750 11,524,142
- -----------------------------------------------------------------------------------------------------
United Therapeutics Corp.* 100,000 2,292,000
- -----------------------------------------------------------------------------------------------------
$29,751,490
- -----------------------------------------------------------------------------------------------------
Printing & Publishing - 1.6%
- -----------------------------------------------------------------------------------------------------
A.H. Belo Corp. 125,000 $2,915,000
- -----------------------------------------------------------------------------------------------------
Bowne & Co., Inc. 120,300 1,747,959
- -----------------------------------------------------------------------------------------------------
Lee Enterprises, Inc. 175,000 6,867,000
- -----------------------------------------------------------------------------------------------------
McClatchy Co., "A" 125,000 7,465,000
- -----------------------------------------------------------------------------------------------------
Playboy Enterprises, Inc., "B"* 250,000 3,600,000
- -----------------------------------------------------------------------------------------------------
$22,594,959
- -----------------------------------------------------------------------------------------------------
Real Estate - 0.2%
- -----------------------------------------------------------------------------------------------------
American Financial Reality Trust* 239,800 $3,453,120
- -----------------------------------------------------------------------------------------------------
Restaurants - 1.9%
- -----------------------------------------------------------------------------------------------------
Brinker International, Inc.* 200,000 $6,840,000
- -----------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 200,000 7,730,000
- -----------------------------------------------------------------------------------------------------
P.F Chang's China Bistro, Inc.* 16,700 776,550
- -----------------------------------------------------------------------------------------------------
Panera Bread Co.* 25,000 1,103,750
- -----------------------------------------------------------------------------------------------------
The Cheesecake Factory* 297,900 10,855,476
- -----------------------------------------------------------------------------------------------------
$27,305,776
- -----------------------------------------------------------------------------------------------------
Special Products & Services - 0.2%
- -----------------------------------------------------------------------------------------------------
Ceradyne, Inc.* 118,380 $2,713,388
- -----------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.8%
- -----------------------------------------------------------------------------------------------------
Airgas, Inc. 92,800 $1,738,144
- -----------------------------------------------------------------------------------------------------
Delta & Pine Land Co. 357,355 8,898,140
- -----------------------------------------------------------------------------------------------------
Georgia Gulf Corp. 65,600 1,466,160
- -----------------------------------------------------------------------------------------------------
$12,102,444
- -----------------------------------------------------------------------------------------------------
Specialty Stores - 6.2%
- -----------------------------------------------------------------------------------------------------
A.C. Moore Arts & Crafts, Inc.* 234,700 $6,306,389
- -----------------------------------------------------------------------------------------------------
Charming Shoppes, Inc.* 1,200,000 7,200,000
- -----------------------------------------------------------------------------------------------------
Chico's FAS, Inc.* 165,300 5,370,597
- -----------------------------------------------------------------------------------------------------
Guitar Center, Inc.* 85,400 2,864,316
- -----------------------------------------------------------------------------------------------------
Hot Topic, Inc.* 128,700 4,589,442
- -----------------------------------------------------------------------------------------------------
O'Reilly Automotive, Inc.* 200,000 7,658,000
- -----------------------------------------------------------------------------------------------------
PETCO Animal Supplies, Inc.* 420,225 13,489,222
- -----------------------------------------------------------------------------------------------------
PETsMART, Inc.* 772,500 18,478,200
- -----------------------------------------------------------------------------------------------------
Pier 1 Imports, Inc. 250,000 5,142,500
- -----------------------------------------------------------------------------------------------------
Regis Corp. 368,450 12,744,686
- -----------------------------------------------------------------------------------------------------
Too, Inc.* 409,200 6,637,224
- -----------------------------------------------------------------------------------------------------
$90,480,576
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 3.4%
- -----------------------------------------------------------------------------------------------------
ADTRAN, Inc. 267,300 $14,648,040
- -----------------------------------------------------------------------------------------------------
Advanced Fibre Communications, Inc.* 400,000 9,308,000
- -----------------------------------------------------------------------------------------------------
Andrew Corp.* 863,600 10,691,368
- -----------------------------------------------------------------------------------------------------
Corvis Corp.* 298,000 408,260
- -----------------------------------------------------------------------------------------------------
F5 Networks, Inc.* 187,500 3,676,875
- -----------------------------------------------------------------------------------------------------
McDATA Corp., "A"* 200,000 2,030,000
- -----------------------------------------------------------------------------------------------------
McDATA Corp., "B"* 400,000 4,024,000
- -----------------------------------------------------------------------------------------------------
Sonus Networks, Inc.* 736,600 5,229,860
- -----------------------------------------------------------------------------------------------------
$50,016,403
- -----------------------------------------------------------------------------------------------------
Telephone Services - 0.1%
- -----------------------------------------------------------------------------------------------------
Commonwealth Telephone Enterprises, Inc.* 19,100 $753,686
- -----------------------------------------------------------------------------------------------------
Trucking - 3.1%
- -----------------------------------------------------------------------------------------------------
C.H. Robinson Worldwide, Inc. 65,980 $2,505,261
- -----------------------------------------------------------------------------------------------------
Dynamex, Inc.* 68,328 583,521
- -----------------------------------------------------------------------------------------------------
Heartland Express, Inc.* 382,731 9,778,777
- -----------------------------------------------------------------------------------------------------
J.B. Hunt Transport Services, Inc.* 100,000 4,970,000
- -----------------------------------------------------------------------------------------------------
Knight Transportation, Inc.* 353,200 9,695,340
- -----------------------------------------------------------------------------------------------------
Swift Transportation, Inc.* 256,250 5,481,187
- -----------------------------------------------------------------------------------------------------
UTI Worldwide, Inc 79,200 2,890,800
- -----------------------------------------------------------------------------------------------------
Werner Enterprises, Inc. 357,917 8,858,446
- -----------------------------------------------------------------------------------------------------
$44,763,332
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $1,321,334,297
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 4.5%
- -----------------------------------------------------------------------------------------------------
Australia - 0.2%
- -----------------------------------------------------------------------------------------------------
Billabong International Ltd. (Apparel Manufacturers) 587,975 $2,634,430
- -----------------------------------------------------------------------------------------------------
Bermuda - 0.5%
- -----------------------------------------------------------------------------------------------------
W.P. Stewart & Co., Ltd. (Brokerage & Asset Managers) 64,100 $1,258,924
- -----------------------------------------------------------------------------------------------------
XOMA Ltd. (Biotechnology) 706,600 6,620,842
- -----------------------------------------------------------------------------------------------------
$7,879,766
- -----------------------------------------------------------------------------------------------------
Canada - 3.3%
- -----------------------------------------------------------------------------------------------------
ATI Technologies, Inc. (Personal Computers &
Peripherals)* 372,900 $5,630,790
- -----------------------------------------------------------------------------------------------------
Cognos, Inc. (Computer Software)* 331,000 10,145,150
- -----------------------------------------------------------------------------------------------------
Open Text Corp. (Computer Software)* 499,600 18,540,156
- -----------------------------------------------------------------------------------------------------
Zarlink Semiconductor, Inc. (Electronics)* 2,992,935 13,977,007
- -----------------------------------------------------------------------------------------------------
$48,293,103
- -----------------------------------------------------------------------------------------------------
Grand Cayman Islands - 0.2%
- -----------------------------------------------------------------------------------------------------
02Micro International Ltd. (Electronics)* 168,000 $2,644,320
- -----------------------------------------------------------------------------------------------------
Israel - 0.2%
- -----------------------------------------------------------------------------------------------------
AudioCodes Ltd. (Telecommunications - Wireline)* 83,100 $502,007
- -----------------------------------------------------------------------------------------------------
Verisity Ltd. (Computer Software)* 162,600 1,918,680
- -----------------------------------------------------------------------------------------------------
$2,420,687
- -----------------------------------------------------------------------------------------------------
Mexico - 0.1%
- -----------------------------------------------------------------------------------------------------
Grupo Aeroportuario del Sureste S.A. de C.V.,
ADR (Airlines) 87,590 $1,302,463
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $65,174,769
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,128,888,390) $1,386,509,066
- -----------------------------------------------------------------------------------------------------
Preferred Stock - 0.5%
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - 0.5%
- -----------------------------------------------------------------------------------------------------
Internet - 0.5%
- -----------------------------------------------------------------------------------------------------
eCollege.com, Inc. (Identified Cost, $6,785,100)*+ 646,200 $7,967,646
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 21.5%
- -----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 311,871,571 $311,871,571
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.7%
- -----------------------------------------------------------------------------------------------------
Citigroup, Inc., due 9/25/03 $2,001 $1,999,573
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 9/02/03 15,760 15,759,632
- -----------------------------------------------------------------------------------------------------
Ford Motor Credit Corp., due 9/12/03 3,200 3,198,798
- -----------------------------------------------------------------------------------------------------
General Electric Capital Corp., due 9/02/03 10,795 10,794,664
- -----------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., due 9/11/03 6,400 6,397,778
- -----------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter, due 9/02/03 1,272 1,271,961
- -----------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $39,422,406
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,486,967,467) $1,745,770,689
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (20.1)% (292,219,321)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,453,551,368
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
+ Restricted security.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities composing
the total value of your fund.
AT 8/31/03
ASSETS
Investments, at value, including $304,358,282 of
securities on loan (identified cost, $1,486,967,467) $1,745,770,689
- -----------------------------------------------------------------------------------------------------
Cash 782
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 7,647,321
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 24,031,853
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 240,530
- -----------------------------------------------------------------------------------------------------
Other assets 274
- -----------------------------------------------------------------------------------------------------
Total assets $1,777,691,449
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $9,383,959
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 2,334,601
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 311,871,571
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 104,213
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 12,737
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 56,377
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 376,623
- -----------------------------------------------------------------------------------------------------
Total liabilities $324,140,081
- -----------------------------------------------------------------------------------------------------
Net assets $1,453,551,368
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $1,825,549,425
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments 258,803,222
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (630,786,652)
- -----------------------------------------------------------------------------------------------------
Accumulated net investment loss (14,627)
- -----------------------------------------------------------------------------------------------------
Total $1,453,551,368
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 100,280,588
- -----------------------------------------------------------------------------------------------------
Class A shares
Net assets $1,004,473,013
- -----------------------------------------------------------------------------------------------------
Shares outstanding 68,934,382
- -----------------------------------------------------------------------------------------------------
Net asset value per share $14.57
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$14.57) $15.46
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
Net assets $271,580,241
- -----------------------------------------------------------------------------------------------------
Shares outstanding 19,139,512
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $14.19
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $84,391,441
- -----------------------------------------------------------------------------------------------------
Shares outstanding 5,938,604
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $14.21
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $90,872,048
- -----------------------------------------------------------------------------------------------------
Shares outstanding 6,114,228
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $14.86
- -----------------------------------------------------------------------------------------------------
Class R shares
Net assets $1,824,068
- -----------------------------------------------------------------------------------------------------
Shares outstanding 125,191
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $14.57
- -----------------------------------------------------------------------------------------------------
Class 529A shares
Net assets $179,709
- -----------------------------------------------------------------------------------------------------
Shares outstanding 12,365
- -----------------------------------------------------------------------------------------------------
Net asset value per share $14.53
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X14.53) $15.42
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $83,738
- -----------------------------------------------------------------------------------------------------
Shares outstanding 5,918
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $14.15
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $147,110
- -----------------------------------------------------------------------------------------------------
Shares outstanding 10,388
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $14.16
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares are reduced. A contingent
deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class 529A, Class 529B,
and Class 529C shares.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It also
describes any gains and/or losses generated by fund operations.
FOR YEAR ENDED 8/31/03
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------
Dividends $3,997,785
- -----------------------------------------------------------------------------------------------------
Interest 936,243
- -----------------------------------------------------------------------------------------------------
Income on securities loaned 445,194
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (2,523)
- -----------------------------------------------------------------------------------------------------
Total investment income $5,376,699
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $10,323,512
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 29,139
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 1,198,172
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 2,748,586
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 2,235,256
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 752,557
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R) 1,584
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 298
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 348
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 639
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 213
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 87
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 160
- -----------------------------------------------------------------------------------------------------
Administrative fee 110,084
- -----------------------------------------------------------------------------------------------------
Custodian fee 373,899
- -----------------------------------------------------------------------------------------------------
Printing 125,915
- -----------------------------------------------------------------------------------------------------
Postage 233,884
- -----------------------------------------------------------------------------------------------------
Auditing fees 33,196
- -----------------------------------------------------------------------------------------------------
Legal fees 10,979
- -----------------------------------------------------------------------------------------------------
Miscellaneous 1,637,478
- -----------------------------------------------------------------------------------------------------
Total expenses $19,815,986
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (39,221)
- -----------------------------------------------------------------------------------------------------
Net expenses $19,776,765
- -----------------------------------------------------------------------------------------------------
Net investment loss $(14,400,066)
- -----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $(44,260,368)
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions 3,818
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions $(44,256,550)
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation on investments $302,185,359
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency $257,928,809
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $243,528,743
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment loss $(14,400,066) $(21,597,324)
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (44,256,550) (362,812,388)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments 302,185,359 (79,980,275)
- --------------------------------------------------------- -------------- ------------------
Increase (decrease) in net assets from operations $243,528,743 $(464,389,987)
- --------------------------------------------------------- -------------- ------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
In excess of net realized gain on investments and
foreign currency transactions
- -----------------------------------------------------------------------------------------------------
Class A $-- $(15,689)
- -----------------------------------------------------------------------------------------------------
Class B -- (4,984)
- -----------------------------------------------------------------------------------------------------
Class C -- (1,884)
- -----------------------------------------------------------------------------------------------------
Class I -- (787)
- --------------------------------------------------------- -------------- ------------------
Total distributions declared to shareholders $-- $(23,344)
- --------------------------------------------------------- -------------- ------------------
Net increase in net assets from fund share transactions $20,105,464 $62,239,942
- --------------------------------------------------------- -------------- ------------------
Total increase (decrease) in net assets $263,634,207 $(402,173,389)
- --------------------------------------------------------- -------------- ------------------
NET ASSETS
At beginning of period $1,189,917,161 $1,592,090,550
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $14,627 and $15,416, respectively) $1,453,551,368 $1,189,917,161
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years (or, if
shorter, the period of the fund's operation). Certain information reflects financial results for a single fund share. The total
returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund (assuming
reinvestment of all distributions). This information has been audited by the fund's independent auditors, whose report,
together with the fund's financial statements, are included in this report.
FOR YEARS ENDED 8/31
CLASS A 2003 2002 2001 2000 1999
Net asset value, beginning of period $11.99 $16.17 $25.00 $14.59 $10.65
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.13) $(0.18) $(0.20) $(0.26) $(0.16)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.71 (4.00) (5.02) 11.28 4.24
- --------------------------------------------- ------ ------- ------- ------- ------
Total from investment operations $2.58 $(4.18) $(5.22) $11.02 $4.08
- --------------------------------------------- ------ ------- ------- ------- ------
LESS DISTRIBUTIONS
From net realized gain on investments
and foreign currency transactions $-- $-- $(3.23) $(0.61) $(0.14)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- --+ (0.30) -- --
- ------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- (0.08) -- --
- --------------------------------------------- ------ ------- ------- ------- ------
Total distributions $-- $--+ $(3.61) $(0.61) $(0.14)
- --------------------------------------------- ------ ------- ------- ------- ------
Net asset value, end of period $14.57 $11.99 $16.17 $25.00 $14.59
- --------------------------------------------- ------ ------- ------- ------- ------
Total return (%)(+) 21.52 (25.85) (22.37) 76.63 38.44
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.58 1.58 1.52 1.53 1.51
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.11) (1.21) (1.06) (1.17) (1.13)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 104 102 49 103 104
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $1,004,473 $822,193 $1,050,554 $904,142 $248,710
- ------------------------------------------------------------------------------------------------------------------------------
(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. 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 loss per share and the
ratios would have been:
Net investment loss $(0.26) $(0.17)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.51 1.57
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.15) (1.19)
- ------------------------------------------------------------------------------------------------------------------------------
+ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) 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.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS B 2003 2002 2001 2000 1999
Net asset value, beginning of period $11.75 $15.95 $24.71 $14.46 $10.60
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.21) $(0.28) $(0.32) $(0.39) $(0.24)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 2.65 (3.92) (4.97) 11.17 4.21
- ---------------------------------------------- ------ ------- ------- ------- ------
Total from investment operations $2.44 $(4.20) $(5.29) $10.78 $3.97
- ---------------------------------------------- ------ ------- ------- ------- ------
LESS DISTRIBUTIONS
From net realized gain on investments and
foreign currency transactions $-- $-- $(3.10) $(0.53) $(0.11)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- --+ (0.29) -- --
- ------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- (0.08) -- --
- ---------------------------------------------- ------ ------- ------- ------- ------
Total distributions $-- $--+ $(3.47) $(0.53) $(0.11)
- ---------------------------------------------- ------ ------- ------- ------- ------
Net asset value, end of period $14.19 $11.75 $15.95 $24.71 $14.46
- ---------------------------------------------- ------ ------- ------- ------- ------
Total return (%) 20.77 (26.33) (22.92) 75.50 37.56
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 2.23 2.23 2.17 2.18 2.16
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.76) (1.86) (1.70) (1.81) (1.76)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 104 102 49 103 104
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $271,580 $232,792 $352,886 $483,805 $174,488
- ------------------------------------------------------------------------------------------------------------------------------
(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 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% of 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)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.16 2.22
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.79) (1.82)
- ------------------------------------------------------------------------------------------------------------------------------
+ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS C 2003 2002 2001 2000 1999
Net asset value, beginning of period $11.77 $15.97 $24.73 $14.47 $10.61
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.21) $(0.28) $(0.32) $(0.39) $(0.24)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 2.65 (3.92) (4.97) 11.18 4.21
- ---------------------------------------------- ------ ------- ------- ------- ------
Total from investment operations $2.44 $(4.20) $(5.29) $10.79 $3.97
- ---------------------------------------------- ------ ------- ------- ------- ------
LESS DISTRIBUTIONS
From net realized gain on investments and
foreign currency transactions $-- $-- $(3.10) $(0.53) $(0.11)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- --+ (0.29) -- --
- ------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- (0.08) -- --
- ---------------------------------------------- ------ ------- ------- ------- ------
Total distributions $-- $--+ $(3.47) $(0.53) $(0.11)
- ---------------------------------------------- ------ ------- ------- ------- ------
Net asset value, end of period $14.21 $11.77 $15.97 $24.73 $14.47
- ---------------------------------------------- ------ ------- ------- ------- ------
Total return (%) 20.73 (26.34) (22.87) 75.57 37.53
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 2.23 2.23 2.17 2.18 2.16
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.76) (1.86) (1.70) (1.79) (1.78)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 104 102 49 103 104
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $84,391 $87,271 $136,530 $202,891 $74,493
- ------------------------------------------------------------------------------------------------------------------------------
(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 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% of 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)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.16 2.22
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.77) (1.84)
- ------------------------------------------------------------------------------------------------------------------------------
+ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS I 2003 2002 2001 2000 1999
Net asset value, beginning of period $12.19 $16.37 $25.26 $14.71 $10.70
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.09) $(0.13) $(0.13) $(0.18) $(0.11)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 2.76 (4.05) (5.09) 11.37 4.27
- ---------------------------------------------- ------ ------- ------- ------- ------
Total from investment operations $2.67 $(4.18) $(5.22) $11.19 $4.16
- ---------------------------------------------- ------ ------- ------- ------- ------
LESS DISTRIBUTIONS
From net realized gain (loss) on
investments and foreign currency
transactions $-- $-- $(3.28) $(0.64) $(0.15)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- --+ (0.31) -- --
- ------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- (0.08) -- --
- ---------------------------------------------- ------ ------- ------- ------- ------
Total distributions $-- $--+ $(3.67) $(0.64) $(0.15)
- ---------------------------------------------- ------ ------- ------- ------- ------
Net asset value, end of period $14.86 $12.19 $16.37 $25.26 $14.71
- ---------------------------------------------- ------ ------- ------- ------- ------
Total return (%) 21.90 (25.58) (22.09) 77.22 39.06
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.23 1.23 1.17 1.18 1.16
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.75) (0.86) (0.71) (0.83) (0.77)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 104 102 49 103 104
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $90,872 $47,641 $52,121 $35,311 $9,973
- ------------------------------------------------------------------------------------------------------------------------------
(S) 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 0.25% of average daily net assets, effective November 1, 1997 through December 31, 1999,
and 0.30% through August 31, 2000. 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 loss per share and the ratios would have been:
Net investment loss $(0.18) $(0.12)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.16 1.22
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.81) (0.83)
- ------------------------------------------------------------------------------------------------------------------------------
+ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR PERIOD ENDED 8/31
CLASS R 2003*
Net asset value, beginning of period $11.43
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.11)
- -----------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 3.25
- ---------------------------------------------------------------------------
Total from investment operations $3.14
- ---------------------------------------------------------------------------
Net asset value, end of period $14.57
- ---------------------------------------------------------------------------
Total return (%) 27.47++
- -----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.78+
- -----------------------------------------------------------------------------
Net investment loss (1.26)+
- -----------------------------------------------------------------------------
Portfolio turnover 104
- -----------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,824
- -----------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002,
through August 31, 2003.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
YEAR PERIOD YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
8/31/03 8/31/02* 8/31/03 8/31/02* 8/31/03 8/31/02*
- --------------------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Net asset value, beginning of period $11.99 $11.85 $11.75 $11.62 $11.77 $11.64
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss $(0.16) $(0.01) $(0.24) $(0.02) $(0.24) $(0.02)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments and foreign currency 2.70 0.15 2.64 0.15 2.63 0.15
- ---------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $2.54 $0.14 $2.40 $0.13 $2.39 $0.13
- ---------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $14.53 $11.99 $14.15 $11.75 $14.16 $11.77
- ---------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+) 21.18 1.18++ 20.43 1.12++ 20.31 1.12++
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.84 1.83+ 2.49 2.48+ 2.50 2.48+
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.35) (1.20)+ (1.99) (1.87)+ (1.99) (1.88)+
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 104 102 104 102 104 102
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $180 $10 $84 $6 $147 $5
- ------------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529 shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class 529A 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.
- -------------------------------------------------------------------------------
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
accounting principles generally accepted in the United States of America
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 in the fund's portfolio for which
market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Short-term obligations in the fund's portfolio
are valued at amortized cost, which constitutes fair value as determined by
the Board of Trustees. Short-term obligations with a remaining maturity in
excess of 60 days will be valued upon dealer-supplied valuations. Portfolio
investments for which market quotations are not readily available, or whose
values have been materially affected by events occurring after the close of
their primary markets, are valued at fair value as determined in good faith by
or at the direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize a
joint trading account for the purpose of entering into one or more repurchase
agreements.
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 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. 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, 2003,
the value of securities loaned was $304,358,282. These loans were
collateralized by cash of $311,871,571 and non cash U.S. Treasury obligations
of $475,953.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. All premium and discount is amortized or accreted for
financial statement purposes in accordance with generally accepted accounting
principles. Dividends received in cash are recorded on the ex-dividend 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. During the period, the fund's custodian fees were reduced by $20,381
under this arrangement. The fund has entered into a directed brokerage
agreement, under which the broker will credit the fund a portion of the
commissions generated, to offset certain expenses of the fund. For the period,
the fund's other expenses were reduced by $18,840 under this agreement. These
amounts are 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. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, real estate investment trusts, wash
sales and capital losses.
The tax character of distributions declared for the years ended August 31,
2003 and August 31, 2002 was as follows:
8/31/03 8/31/02
Distributions declared from ordinary income $-- $23,344
- --------------------------------------------------------------------------------
During the year ended August 31, 2003, accumulated net investment loss
decreased by $14,400,855, accumulated net realized loss on investments and
foreign currency transactions increased by $3,818, and paid-in capital
decreased by $14,397,037 due to differences between book and tax accounting
for currency transactions and net operating losses. This change had no effect
on the net assets or net asset value per share.
As of August 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(625,043,618)
- --------------------------------------------------------------------------------
Unrealized appreciation 257,619,886
- --------------------------------------------------------------------------------
Post October capital loss deferral (4,559,698)
- --------------------------------------------------------------------------------
Other temporary differences (14,627)
- --------------------------------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration on August 31, 2010, ($271,036,016) and August
31, 2011, ($354,007,602).
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses. Class B and Class
529B shares will convert to Class A and Class 529A shares, respectively,
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 pays compensation to the Independent Trustees ("Trustees") in the
form of both a retainer and attendance fees, and 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).
On January 1, 2002, the Trustees terminated the Independent Trustee unfunded
defined benefit plan for active Trustees. Included in Trustees' compensation
is a pension expense of $1,555 for inactive trustees for the year ended August
31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
at the following annual percentages of the fund's average daily net assets:
First $2 billion 0.0175%
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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
$74,527 and $510 for the year ended August 31, 2003, as its portion of the
sales charge on sales of Class A and Class 529A shares of the fund,
respectively.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class R, Class 529A, Class 529B and Class 529C 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 an annual
percentage of its average daily net assets attributable to certain share
classes 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
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25% 0.75% 0.75%
- --------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------
Total
Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50% 1.00% 1.00%
- --------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the year
ended August 31, 2003, amounted to:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Service Fee
Retained by MFD $34,390 $2,223 $1,229 $-- $51 $-- $--
- --------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Total
Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.35% 1.00% 1.00%
- --------------------------------------------------------------------------------------------------
Payment of the 0.15% per annum portion of the Class 529A distribution fee that
is not currently being charged will be implemented on such date as the
Trustees of the trust may determine. Fees incurred under the distribution plan
during the year ended August 31, 2003, were as follows:
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within, for
class A shares, 12 months following the purchase, and, for class C and 529C
shares, the first year from the end of the calendar month of purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B and Class 529B shares in the event of a shareholder redemption within
six years from the end of the calendar month of purchase. MFD receives all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended August 31, 2003, were as follows:
CLASS A CLASS B CLASS 529B CLASS C CLASS 529C
Contingent Deferred
Sales Charges Imposed $10,842 $425,879 $-- $8,629 $--
- --------------------------------------------------------------------------------
The fund has and may from time to time enter into contracts with program
managers and other parties which administer the tuition programs through which
an investment in the fund's 529 share classes is made. The fund has entered
into an agreement with MFD pursuant to which MFD receives an annual fee of up
to 0.25% from the fund based solely upon the value of the fund's 529 share
classes attributable to tuition programs to which MFD or a third party which
contracts with MFD provides administrative services. The current fee has been
established at 0.25% annually of average net assets of the fund's 529 share
classes attributable to such programs. The fee may only be increased with the
approval of the board of trustees that oversees the fund. The services
provided by MFD or a third party with which MFD contracts include
recordkeeping and tax reporting and account services, as well as services
designed to maintain the program's compliance with the Internal Revenue Code
and other regulatory requirements.
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
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,161,363,535 and $1,132,336,703, 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 $1,488,150,803
- ------------------------------------------------------------------------------
Gross unrealized appreciation $299,997,002
- ------------------------------------------------------------------------------
Gross unrealized depreciation (42,377,116)
- ------------------------------------------------------------------------------
Net unrealized appreciation $257,619,886
- ------------------------------------------------------------------------------
(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:
Year ended 8/31/03 Year ended 8/31/02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 35,664,447 $430,133,582 46,601,538 $708,790,044
- ---------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 1,612 25,642
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (35,299,458) (415,394,400) (43,017,428) (615,583,194)
- ---------------------------------------------------------------------------------------------------------------
Net increase 364,989 $14,739,182 3,585,722 $93,232,492
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 5,358,532 $62,805,270 5,222,620 $77,134,173
- ---------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 450 7,342
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (6,028,202) (69,524,682) (7,541,319) (107,643,576)
- ---------------------------------------------------------------------------------------------------------------
Net decrease (669,670) $(6,719,412) (2,318,249) $(30,502,061)
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,776,376 $20,636,995 1,639,253 $25,677,235
- ---------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 243 3,864
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (3,251,716) (37,093,561) (2,772,927) (39,488,363)
- ---------------------------------------------------------------------------------------------------------------
Net decrease (1,475,340) $(16,456,566) (1,133,431) $(13,807,264)
- ---------------------------------------------------------------------------------------------------------------
Year ended 8/31/03 Year ended 8/31/02
SHARES AMOUNT SHARES AMOUNT
CLASS I SHARES
Shares sold 3,929,334 $47,692,689 2,416,791 $37,999,084
- ---------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 45 756
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (1,723,884) (21,047,940) (1,691,261) (24,703,713)
- ---------------------------------------------------------------------------------------------------------------
Net increase 2,205,450 $26,644,749 725,575 $13,296,127
- ---------------------------------------------------------------------------------------------------------------
Period ended 8/31/03*
SHARES AMOUNT
CLASS R SHARES
Shares sold 205,386 $2,552,772
- -------------------------------------------------------------------------
Shares reacquired (80,195) (967,828)
- -------------------------------------------------------------------------
Net increase 125,191 $1,584,944
- -------------------------------------------------------------------------
Year ended 8/31/03 Period ended 8/31/02**
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 12,297 $145,200 831 $9,997
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (763) (10,347) -- --
- ---------------------------------------------------------------------------------------------------------------
Net increase 11,534 $134,853 831 $9,997
- ---------------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 5,471 $63,409 469 $5,502
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (22) (252) -- --
- ---------------------------------------------------------------------------------------------------------------
Net increase 5,449 $63,157 469 $5,502
- ---------------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 9,964 $114,725 443 $5,200
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (15) (168) (4) (51)
- ---------------------------------------------------------------------------------------------------------------
Net increase 9,949 $114,557 439 $5,149
- ---------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002, through August 31, 2003.
** For the period from the inception of Class 529 shares, July 31, 2002, through August 31, 2002.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million 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. A commitment fee of $7,639 which is based on the average daily
unused portion of the line of credit is included in miscellaneous expense. The
fund had no significant borrowings during the year.
(7) RESTRICTED SECURITIES
The fund may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At August 31, 2003,
the New Discovery Fund owned the following restricted securities, excluding
securities issued under Rule 144A, constituting 0.89% of net assets which may
not be publicly sold without registration under the Securities Act of 1933. The
fund does not have the right to demand that such securities be registered. The
value of these securities is determined by valuations furnished by dealers or by
a pricing service, or if not available, in good faith at the direction of the
Trustees.
DATE OF SHARE
FUND DESCRIPTION ACQUISITION AMOUNT COST VALUE
New Discovery Fund Autobytel, Inc. 6/20/03 578,900 $3,126,060 $4,909,072
- --------------------------------------------------------------------------------------------------------------------
eCollege.com, Inc. 8/15/03 646,200 6,785,100 7,967,646
- --------------------------------------------------------------------------------------------------------------------
$12,876,718
- --------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees of 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) (one of the portfolios constituting MFS Series
Trust I), including the portfolio of investments, as of August 31, 2003, 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 periods indicated therein. 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, 2003, 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, 2003, 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 its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
October 10, 2003
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust I (of
which the fund is a series), including their principal occupations, which, unless specific dates are shown,
are of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address
of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman
Massachusetts Financial Services Company, Vice
JOHN W. BALLEN (born 09/12/59) President (since August 2000); UAM Fund Services,
Trustee and President Senior Vice President (prior to August 2000)
Massachusetts Financial Services Company, Chief
Executive Officer and Director RICHARD M. HISEY (born 08/29/58)
Treasurer
JAMES R. BORDEWICK, JR. (born 03/06/59) Massachusetts Financial Services Company, Senior
Assistant Secretary and Assistant Clerk Vice President (since July 2002); The Bank of New
Massachusetts Financial Services Company, Senior York, Senior Vice President (September 2000 to
Vice President and Associate General Counsel July 2002); Lexington Global Asset Managers, Inc.,
Executive Vice President and Chief Financial
STEPHEN E. CAVAN (born 11/06/53) Officer (prior to September 2000); Lexington
Secretary and Clerk Funds, Treasurer (prior to September 2000)
Massachusetts Financial Services Company, Senior
Vice President, General Counsel and Secretary ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer
STEPHANIE A. DESISTO (born 10/01/53) Massachusetts Financial Services Company, Vice
Assistant Treasurer President
Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers JAMES O. YOST (born 06/12/60)
Harriman & Co., Senior Vice President (November Assistant Treasurer
2002 to April 2003); ING Groep N.V./Aeltus Massachusetts Financial Services Company, Senior
Investment Management, Senior Vice President Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Cohn, Sherratt and Smith, and Mrs. O'Neill, have served in their capacity as Trustee of the Trust
continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu, and Ms. Smith,
were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke has served
as Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
JP Morgan Chase Manhattan Bank
DISTRIBUTOR One Chase Manhattan Plaza
MFS Fund Distributors, Inc. New York, NY 10081
500 Boylston Street, Boston, MA 02116-3741
AUDITORS
Ernst & Young LLP
PORTFOLIO MANAGERS
Robert A. Henderson(1)
Donald L. Pitcher(1)
(1)MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- ------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.
gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
NDF-ANN-10/03 177M
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/03
MFS(R) Technology Fund
A path for pursuing opportunity
[MFS Logo](R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) TECHNOLOGY FUND
Seeks capital appreciation.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- ----------------------------------------------------
FINANCIAL STATEMENTS 18
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 28
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT 36
- ----------------------------------------------------
TRUSTEES AND OFFICERS 37
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 39
- ----------------------------------------------------
FEDERAL TAX INFORMATION 40
- ----------------------------------------------------
CONTACT INFORMATION 41
- ----------------------------------------------------
ASSET ALLOCATION 42
- -------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
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
MFS Investment Management(R)
September 15, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
A RALLY, A RETREAT, AND ANOTHER RALLY
Modest economic improvements and slightly stronger corporate earnings sparked
a stock market rally in October and November 2002 that was led by technology
stocks. The stock markets cooled in the winter months of 2003 because of mixed
economic signals and an increase in geopolitical tensions. However, the market
began to rebound in mid-March and continued almost without pause for the
balance of the reporting period. Once more, technology stocks led the way.
PORTFOLIO POSITIONING
At the start of the period, we positioned the fund conservatively in larger,
high-quality companies that we believed had solid cash balances and
established franchises. Although these stocks participated in the October/
November rally, they underperformed many of the higher risk companies.
The historically more volatile stocks led the 2003 rally as well and turned in
stronger results than their more conservative counterparts. Larger companies,
as measured by market capitalization, generated lower returns than smaller,
aggressively managed firms. Throughout the latter half of the period, the fund
was a little less conservative in its stock selections and was underweighted
in large-cap names such as IBM and Microsoft. That shift in positioning helped
both absolute and relative returns.
DETRACTORS FROM PERFORMANCE
Although the fund's absolute returns were strong for the reporting period, its
relative returns were lower than its benchmark. The fund's underweighting in
Intel relative to its benchmark was one of the largest detractors from
performance. On average, Intel represented slightly more than 4% of the fund's
portfolio during the period and was one of the fund's largest positions in the
second half of the period. The company contributed solid returns to absolute
performance. However, Intel averaged nearly 9.25% of the Goldman Sachs
Technology Index and, as a result of that heavier weighting, Intel made a
greater contribution to the index's return. We generally do not hold that large
a position in any single stock, particularly in an uncertain market environment.
We did not invest heavily in Internet services company Yahoo! because, in part,
we thought that its stock price was too high in comparison to its potential
future earnings. As a result, we did not participate fully in the appreciation
of the Yahoo! stock.
Other stocks that held back performance included Sega, Motorola, Qualcomm,
Bisys, and Sabre. Videogame maker Sega disappointed investors in late 2002 when
it failed to sell as much game software as many had expected. The company lost
some of its market share to key competitors Sony and Nintendo.
In the first and second quarters of 2003, cell phone manufacturers Motorola and
Qualcomm experienced sliding sales in their large Asian markets because of
severe acute respiratory syndrome (SARS) and increased competition. Cell phone
sales for both companies improved during the summer.
The stock prices of business services companies Bisys and Sabre are sensitive
to changes in the economic environment. Bisys provides distribution services
for financial services firms. The company did not meet its revenue expectations
for its education and insurance divisions. Sabre, an airline reservation
services company, saw its fee-based income decline because of weakness in the
travel industry. The fund no longer owns this stock.
CONTRIBUTORS TO PERFORMANCE
The fund's analysts generally made strong choices in the electronics and the PC
& peripherals industries. In electronics, Marvell Technology Group delivered
outstanding results for the fund. The company is a semiconductor provider of
broadband communications chips and data storage chips. Its Gigabit Ethernet
products replace current industry-standard 100-megabit products with chips that
provide faster access to the Internet, other computers, and software
applications. The company experienced a growing market share in a segment of
the industry that is rapidly expanding.
In the PC & peripherals industry, Avid Technology contributed strong returns to
fund performance. The company makes digital animation and film editing hardware
and software for broadcasters and filmmakers. Avid's sales to broadcasters
picked up significantly because the Federal Communications Commission is
requiring broadcasters to upgrade to high definition TV (which is a digital
signal). In 2003, 50% of all programming is required to be HDTV, 75% in 2005,
and 100% in 2006. As a result, broadcasters have to upgrade to digital editing
equipment, such as that made by Avid, so that programs can be properly
mastered.
Stock selections in computer software were another strong group for the period.
Amdocs makes software products and services used to manage wireless customer
billing. As communications companies offer more wireless services such as
Internet access, personal messaging, and family calling plans, billing becomes
more complex. Amdocs software helps major communications companies bill
accurately for services used. The company's stock price rose steadily
throughout the period and was given an added lift by the general technology
rally. Symantec, a content and network security software maker, which has since
been sold out of the portfolio and Citrix, an application management software
maker, also contributed to fund performance.
Respectfully,
/s/ David A. Antonelli
David A. Antonelli
Director of Global Equity Research
The committee of MFS Global Equity Research analysts is responsible for the
day-to-day management of the fund under the general supervision of Mr.
Antonelli.
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. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 8/31/03
- -------------------------------------------------------------------------------
The following information illustrates the historical performance of the fund's
original share class in comparison to its benchmarks. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including the reinvestment of any
dividends and capital gains distributions. 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, 2003. Index information is from January 2,
1997.)
MFS Technology Goldman Sachs Merrill Lynch 100
Fund - Class A Technology Index Technology Index
1/3/97 $10,000 $10,000 $ 9,425
8/31/97 12,101 13,559 11,810
8/31/99 24,656 27,523 19,397
8/31/01 16,994 16,464 14,211
8/31/03 15,683 14,421 11,034
TOTAL RETURNS
- ----------------------
Average annual
without sales charge
- ----------------------
Class
Share class inception date 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/1997 32.80% -32.86% -1.23% 2.39%
- ------------------------------------------------------------------------------
B 4/14/2000 31.98% -33.30% -1.68% 2.04%
- ------------------------------------------------------------------------------
C 4/14/2000 31.82% -33.32% -1.70% 2.03%
- ------------------------------------------------------------------------------
I 1/02/1997 33.18% -32.53% -0.90% 2.65%
- ------------------------------------------------------------------------------
R 12/31/2002 32.48% -32.91% -1.28% 2.36%
- ------------------------------------------------------------------------------
- ----------------------
Average annual
- ----------------------
Comparative Benchmarks
- ------------------------------------------------------------------------------
Average science and
technology fund+ 41.44% -33.19% 4.69% 4.64%
- ------------------------------------------------------------------------------
Goldman Sachs
Technology Index#** 38.40% -31.53% 1.92% 5.64%
- ------------------------------------------------------------------------------
Merrill Lynch 100
Technology Index## 56.83% -31.78% 8.82% 6.98%
- ------------------------------------------------------------------------------
- ----------------------
Average annual
with sales charge
- ----------------------
Share class 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 25.16% -34.17% -2.39% 1.49%
- ------------------------------------------------------------------------------
B 27.98% -33.96% -1.99% 2.04%
- ------------------------------------------------------------------------------
C 30.82% -33.32% -1.70% 2.03%
- ------------------------------------------------------------------------------
I and R class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- ----------------------
Cumulative without
sales charge
- ----------------------
- ------------------------------------------------------------------------------
A 32.80% -69.73% -6.00% 17.07%
- ------------------------------------------------------------------------------
B 31.98% -70.33% -8.12% 14.42%
- ------------------------------------------------------------------------------
C 31.82% -70.36% -8.21% 14.32%
- ------------------------------------------------------------------------------
I 33.18% -69.29% -4.43% 19.02%
- ------------------------------------------------------------------------------
R 32.48% -69.80% -6.23% 16.79%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
January 2, 1997, through August 31, 2003. Index information is from January
2, 1997.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Bloomberg L.P.
## Source: Standard & Poor's Micropal, Inc.
** Effective June 4, 2003, we no longer use the Merrill Lynch 100 Technology
Index as a benchmark because we believe the Goldman Sachs Technology Index
better reflects the fund's investment policies and objectives.
INDEX DEFINITIONS
GOLDMAN SACHS TECHNOLOGY INDEX - The Goldman Sachs Technology Index is a
commonly used measure of technology stock performance.
MERRILL LYNCH 100 TECHNOLOGY INDEX - The Merrill Lynch 100 Technology Index is
a broad measure of the technology sector.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflects the deduction of the maximum
5.75% sales charge. Class B results, including sales charge, reflects the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results, including sales
charge, redeemed within one year from the end of the calendar month of
purchase reflects the deduction of the 1% CDSC. Class I shares have no sales
charges and are available only to certain investors. Class R shares have no
sales charges and are available only to certain retirement plans.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
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 and financial statements for details. All
results are historical and assume the reinvestment of dividends and capital
gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
When concentrating on one issuer, the portfolio is sensitive to changes in the
value of these securities.
The portfolio focuses on companies in a limited number of sectors making it
more susceptible to adverse economic, political, or regulatory developments
affecting those sectors than a portfolio that invests more broadly.
Investing in small and/or emerging growth companies is riskier than investing
in more-established companies.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- -----------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 8/31/03
- -----------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 96.1%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - 77.8%
- -----------------------------------------------------------------------------------------------------
Aerospace - 0.2%
- -----------------------------------------------------------------------------------------------------
L-3 Communications Holdings, Inc.* 5,800 $296,322
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 1.0%
- -----------------------------------------------------------------------------------------------------
AOL Time Warner, Inc.* 87,850 $1,437,226
- -----------------------------------------------------------------------------------------------------
EchoStar Communications Corp., "A"* 13,730 506,637
- -----------------------------------------------------------------------------------------------------
$1,943,863
- -----------------------------------------------------------------------------------------------------
Business Services - 7.9%
- -----------------------------------------------------------------------------------------------------
Affiliated Computer Services, Inc., "A"* 6,950 $344,790
- -----------------------------------------------------------------------------------------------------
Bisys Group, Inc.* 140,370 2,575,789
- -----------------------------------------------------------------------------------------------------
Certegy, Inc.* 28,700 868,175
- -----------------------------------------------------------------------------------------------------
Computer Sciences Corp.* 27,309 1,162,544
- -----------------------------------------------------------------------------------------------------
Convergys Corp.* 52,500 945,000
- -----------------------------------------------------------------------------------------------------
CSG Systems International, Inc.* 58,900 914,128
- -----------------------------------------------------------------------------------------------------
Digitas, Inc.* 184,900 1,266,565
- -----------------------------------------------------------------------------------------------------
DST Systems, Inc.* 53,300 2,110,680
- -----------------------------------------------------------------------------------------------------
First Data Corp. 30,936 1,187,942
- -----------------------------------------------------------------------------------------------------
Jack Henry & Associates, Inc. 38,600 721,434
- -----------------------------------------------------------------------------------------------------
Perot Systems Corp., "A"* 32,500 333,450
- -----------------------------------------------------------------------------------------------------
SunGard Data Systems, Inc.* 84,225 2,375,145
- -----------------------------------------------------------------------------------------------------
$14,805,642
- -----------------------------------------------------------------------------------------------------
Computer Software - 18.8%
- -----------------------------------------------------------------------------------------------------
Amdocs Ltd.* 174,800 $3,912,024
- -----------------------------------------------------------------------------------------------------
Ansys, Inc.* 89,600 3,171,840
- -----------------------------------------------------------------------------------------------------
BEA Systems, Inc.* 88,500 1,199,175
- -----------------------------------------------------------------------------------------------------
Citrix Systems, Inc.* 55,600 1,144,804
- -----------------------------------------------------------------------------------------------------
Kronos, Inc.* 44,400 2,566,009
- -----------------------------------------------------------------------------------------------------
Macromedia, Inc.* 36,400 867,776
- -----------------------------------------------------------------------------------------------------
Macrovision Corp.* 39,600 737,352
- -----------------------------------------------------------------------------------------------------
Microsoft Corp. 179,800 4,768,296
- -----------------------------------------------------------------------------------------------------
Netscreen Technologies, Inc.* 27,500 658,075
- -----------------------------------------------------------------------------------------------------
Oracle Corp.* 648,438 8,287,038
- -----------------------------------------------------------------------------------------------------
Peoplesoft, Inc.* 38,580 $698,298
- -----------------------------------------------------------------------------------------------------
Progress Software Corp.* 125,700 2,581,878
- -----------------------------------------------------------------------------------------------------
Sybase, Inc.* 49,600 838,736
- -----------------------------------------------------------------------------------------------------
Synopsys, Inc.* 10,100 688,921
- -----------------------------------------------------------------------------------------------------
Veritas Software Corp.* 86,710 2,989,761
- -----------------------------------------------------------------------------------------------------
$35,109,983
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 6.8%
- -----------------------------------------------------------------------------------------------------
Avnet, Inc.* 65,900 $1,189,495
- -----------------------------------------------------------------------------------------------------
BearingPoint, Inc.* 92,700 760,140
- -----------------------------------------------------------------------------------------------------
Hewlett-Packard Co. 292,283 5,822,277
- -----------------------------------------------------------------------------------------------------
International Business Machines Corp. 35,691 2,927,019
- -----------------------------------------------------------------------------------------------------
Manhattan Associates, Inc.* 27,700 820,751
- -----------------------------------------------------------------------------------------------------
Mentor Graphics Corp. 5,600 113,288
- -----------------------------------------------------------------------------------------------------
Reynolds & Reynolds Co., "A" 6,100 177,205
- -----------------------------------------------------------------------------------------------------
Unisys Corp.* 26,100 338,778
- -----------------------------------------------------------------------------------------------------
Xerox Corp.* 52,500 565,950
- -----------------------------------------------------------------------------------------------------
$12,714,903
- -----------------------------------------------------------------------------------------------------
Electronics - 20.5%
- -----------------------------------------------------------------------------------------------------
Agere Systems, Inc., "B"* 1,020,600 $2,908,710
- -----------------------------------------------------------------------------------------------------
Altera Corp.* 75,400 1,691,976
- -----------------------------------------------------------------------------------------------------
Amphenol Corp., "A"* 17,300 943,369
- -----------------------------------------------------------------------------------------------------
Analog Devices, Inc.* 112,120 4,596,920
- -----------------------------------------------------------------------------------------------------
Entegris, Inc.* 63,500 934,720
- -----------------------------------------------------------------------------------------------------
GlobespanVirata, Inc.* 18,500 140,785
- -----------------------------------------------------------------------------------------------------
Integrated Circuit Systems, Inc.* 33,500 1,156,420
- -----------------------------------------------------------------------------------------------------
Intel Corp. 370,423 10,601,506
- -----------------------------------------------------------------------------------------------------
International Rectifier Corp.* 27,869 1,159,072
- -----------------------------------------------------------------------------------------------------
Linear Technology Corp. 26,800 1,104,696
- -----------------------------------------------------------------------------------------------------
Microchip Technology, Inc. 61,660 1,727,097
- -----------------------------------------------------------------------------------------------------
National Semiconductor Corp.* 55,300 1,611,442
- -----------------------------------------------------------------------------------------------------
PerkinElmer, Inc. 24,400 403,576
- -----------------------------------------------------------------------------------------------------
Planar Systems, Inc.* 22,500 540,675
- -----------------------------------------------------------------------------------------------------
PMC-Sierra, Inc.* 69,800 995,348
- -----------------------------------------------------------------------------------------------------
Rambus, Inc.* 14,500 $241,570
- -----------------------------------------------------------------------------------------------------
SanDisk Corp.* 11,100 671,106
- -----------------------------------------------------------------------------------------------------
Silicon Laboratories, Inc.* 23,800 1,056,958
- -----------------------------------------------------------------------------------------------------
Symbol Technologies, Inc. 26,900 364,226
- -----------------------------------------------------------------------------------------------------
Texas Instruments, Inc. 53,200 1,268,820
- -----------------------------------------------------------------------------------------------------
White Electronic Designs Corp.* 117,500 1,424,100
- -----------------------------------------------------------------------------------------------------
Xilinx, Inc.* 61,800 1,905,912
- -----------------------------------------------------------------------------------------------------
Zoran Corp.* 35,500 886,080
- -----------------------------------------------------------------------------------------------------
$38,335,084
- -----------------------------------------------------------------------------------------------------
Entertainment - 0.3%
- -----------------------------------------------------------------------------------------------------
InterActive Corp.* 12,919 $478,132
- -----------------------------------------------------------------------------------------------------
Internet - 2.9%
- -----------------------------------------------------------------------------------------------------
Ebay, Inc.* 53,400 $2,965,302
- -----------------------------------------------------------------------------------------------------
Yahoo!, Inc.* 74,500 2,488,300
- -----------------------------------------------------------------------------------------------------
$5,453,602
- -----------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 7.4%
- -----------------------------------------------------------------------------------------------------
Avid Technology, Inc.* 62,400 $3,098,160
- -----------------------------------------------------------------------------------------------------
Dell, Inc.* 153,833 5,019,571
- -----------------------------------------------------------------------------------------------------
Imation Corp. 3,400 122,230
- -----------------------------------------------------------------------------------------------------
Jabil Circuit, Inc.* 24,900 700,935
- -----------------------------------------------------------------------------------------------------
Maxtor Corp.* 121,400 1,387,602
- -----------------------------------------------------------------------------------------------------
Network Appliance, Inc.* 36,000 806,760
- -----------------------------------------------------------------------------------------------------
Sanmina-SCI Corp.* 57,600 517,248
- -----------------------------------------------------------------------------------------------------
Solectron Corp.* 85,300 505,829
- -----------------------------------------------------------------------------------------------------
Storage Technology Corp.* 10,600 271,466
- -----------------------------------------------------------------------------------------------------
Western Digital Corp.* 66,700 766,383
- -----------------------------------------------------------------------------------------------------
Zebra Technologies Corp., "A"* 13,100 702,422
- -----------------------------------------------------------------------------------------------------
$13,898,606
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.4%
- -----------------------------------------------------------------------------------------------------
Motorola, Inc. 207,585 $2,227,387
- -----------------------------------------------------------------------------------------------------
Qualcomm, Inc. 57,000 2,352,960
- -----------------------------------------------------------------------------------------------------
$4,580,347
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 7.7%
- -----------------------------------------------------------------------------------------------------
Adtran, Inc. 22,700 $1,243,960
- -----------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 499,663 9,568,546
- -----------------------------------------------------------------------------------------------------
Harris Corp. 8,800 292,160
- -----------------------------------------------------------------------------------------------------
Scientific-Atlanta, Inc. 69,400 2,359,600
- -----------------------------------------------------------------------------------------------------
UTStarcom, Inc.* 20,810 893,998
- -----------------------------------------------------------------------------------------------------
$14,358,264
- -----------------------------------------------------------------------------------------------------
Telephone Services - 1.3%
- -----------------------------------------------------------------------------------------------------
CenturyTel, Inc. 36,220 $1,259,007
- -----------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc.* 87,500 494,375
- -----------------------------------------------------------------------------------------------------
NTL, Inc.* 5,300 213,272
- -----------------------------------------------------------------------------------------------------
Spectrasite, Inc.* 13,600 435,200
- -----------------------------------------------------------------------------------------------------
$2,401,854
- -----------------------------------------------------------------------------------------------------
Wireless Communications - 0.6%
- -----------------------------------------------------------------------------------------------------
NII Holdings, Inc., "B"* 16,700 $1,051,933
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $145,428,535
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 18.3%
- -----------------------------------------------------------------------------------------------------
Bermuda - 2.6%
- -----------------------------------------------------------------------------------------------------
Accenture Ltd., "A" (Business Services)* 109,370 $2,314,269
- -----------------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. (Electronics)* 61,800 2,606,106
- -----------------------------------------------------------------------------------------------------
$4,920,375
- -----------------------------------------------------------------------------------------------------
Canada - 2.1%
- -----------------------------------------------------------------------------------------------------
ATI Technologies, Inc. (Personal Computers &
Peripherals)* 49,200 $742,920
- -----------------------------------------------------------------------------------------------------
Manitoba Telecom Services, Inc. (Telephone Services) 26,310 793,157
- -----------------------------------------------------------------------------------------------------
Nortel Networks Corp. (Telecommunications - Wireline)* 609,600 1,981,200
- -----------------------------------------------------------------------------------------------------
Open Text Corp. (Computer Software) 12,400 460,164
- -----------------------------------------------------------------------------------------------------
$3,977,441
- -----------------------------------------------------------------------------------------------------
China - 0.4%
- -----------------------------------------------------------------------------------------------------
China Telecom Corp., Ltd., ADR (Telephone Services) 30,600 $827,424
- -----------------------------------------------------------------------------------------------------
Finland - 0.8%
- -----------------------------------------------------------------------------------------------------
Nokia Corp., ADR (Telecommunications - Wireline) 87,328 $1,422,573
- -----------------------------------------------------------------------------------------------------
France - 1.7%
- -----------------------------------------------------------------------------------------------------
Business Objects SA, ADR (Computer Software)* 63,900 $1,727,217
- -----------------------------------------------------------------------------------------------------
France Telecom SA (Telephone Services) 40,900 1,016,173
- -----------------------------------------------------------------------------------------------------
Orange SA (Wireless Communications) 55,900 519,284
- -----------------------------------------------------------------------------------------------------
$3,262,674
- -----------------------------------------------------------------------------------------------------
Germany - 0.4%
- -----------------------------------------------------------------------------------------------------
SAP AG, ADR (Computer Software) 23,500 $703,590
- -----------------------------------------------------------------------------------------------------
Grand Cayman Islands - 0.2%
- -----------------------------------------------------------------------------------------------------
O2Micro International Ltd. (Electronics)* 26,100 $410,814
- -----------------------------------------------------------------------------------------------------
Indonesia - 0.2%
- -----------------------------------------------------------------------------------------------------
Telekomunikasi Indonesia Tbk PT (Telephone Services) 638,500 $344,271
- -----------------------------------------------------------------------------------------------------
Israel - 0.1%
- -----------------------------------------------------------------------------------------------------
Check Point Software Technologies Ltd. (Computer
Software)* 10,000 $174,700
- -----------------------------------------------------------------------------------------------------
Italy - 0.2%
- -----------------------------------------------------------------------------------------------------
Telecom Italia SpA (Telephone Services)* 156,929 $369,193
- -----------------------------------------------------------------------------------------------------
Japan - 1.7%
- -----------------------------------------------------------------------------------------------------
Canon, Inc., ADR (Personal Computers & Peripherals) 9,600 $465,216
- -----------------------------------------------------------------------------------------------------
Fujikura Ltd. (Electrical Equipment) 90,000 405,708
- -----------------------------------------------------------------------------------------------------
Japan Telecom Holdings Co., Ltd. (Telephone Services) 156 509,371
- -----------------------------------------------------------------------------------------------------
KDDI Corp. (Telephone Services) 78 399,074
- -----------------------------------------------------------------------------------------------------
Sega Corp. (Leisure & Toys) 40,200 408,253
- -----------------------------------------------------------------------------------------------------
Stanley Electric Co., Ltd. (Electronics) 56,000 988,645
- -----------------------------------------------------------------------------------------------------
$3,176,267
- -----------------------------------------------------------------------------------------------------
Mexico - 1.2%
- -----------------------------------------------------------------------------------------------------
America Movil, SA de CV, ADR (Wireless Communications) 50,580 $1,163,340
- -----------------------------------------------------------------------------------------------------
Telefonos de Mexico SA, ADR (Telephone Services) 15,300 463,743
- -----------------------------------------------------------------------------------------------------
TV Azteca, SA de CV, ADR (Broadcast & Cable TV) 91,100 603,082
- -----------------------------------------------------------------------------------------------------
$2,230,165
- -----------------------------------------------------------------------------------------------------
Netherlands - 1.4%
- -----------------------------------------------------------------------------------------------------
Koninklijke KPN NV (Telephone Services) 87,910 $609,823
- -----------------------------------------------------------------------------------------------------
STMicroelectronics NV (Electronics) 49,210 1,227,297
- -----------------------------------------------------------------------------------------------------
VNU NV (Printing & Publishing)* 24,373 758,284
- -----------------------------------------------------------------------------------------------------
$2,595,404
- -----------------------------------------------------------------------------------------------------
Russia - 0.3%
- -----------------------------------------------------------------------------------------------------
Mobile TeleSystems, ADR (Telephone Services) 6,800 $479,264
- -----------------------------------------------------------------------------------------------------
Singapore - 2.5%
- -----------------------------------------------------------------------------------------------------
Flextronics International Ltd. (Personal Computers &
Peripherals)* 209,700 $2,828,853
- -----------------------------------------------------------------------------------------------------
MobileOne Asia Ltd. (Wireless Communications) 899,000 707,591
- -----------------------------------------------------------------------------------------------------
Singapore Telecommunications Ltd. (Telephone Services) 1,127,000 1,092,740
- -----------------------------------------------------------------------------------------------------
$4,629,184
- -----------------------------------------------------------------------------------------------------
South Korea - 0.9%
- -----------------------------------------------------------------------------------------------------
Samsung Electronics Co., GDR (Electronics)## 8,725 $1,614,057
- -----------------------------------------------------------------------------------------------------
Taiwan - 0.5%
- -----------------------------------------------------------------------------------------------------
AU Optronics Corp., ADR (Electronics) 67,600 $915,304
- -----------------------------------------------------------------------------------------------------
United Kingdom - 1.1%
- -----------------------------------------------------------------------------------------------------
ARM Holdings PLC (Electronics) 13,400 $23,887
- -----------------------------------------------------------------------------------------------------
Marconi Corporation PLC (Telecommunications - Wireline) 415,900 590,474
- -----------------------------------------------------------------------------------------------------
Vodafone Group PLC (Wireless Communications)* 832,720 1,520,511
- -----------------------------------------------------------------------------------------------------
$2,134,872
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $34,187,572
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $149,628,643) $179,616,107
- -----------------------------------------------------------------------------------------------------
Convertible Bond - 0.3%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.3%
- -----------------------------------------------------------------------------------------------------
Brocade Communications Systems, Inc., 2s, 2007
(Identified Cost, $730,000) $730 $593,125
- -----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 15.5%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Identified Cost 28,894,557 $28,894,557
- -----------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.9%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
General Electric Capital Corp., 1.12%, due 9/02/03,
at Amortized Cost $3,612 $3,611,888
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $182,865,088) $212,715,677
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (13.8)% (25,741,734)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $186,973,943
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 8/31/03
ASSETS
Investments, at value, including $28,149,145 of securities
on loan (identified cost, $182,865,088) $212,715,677
- -----------------------------------------------------------------------------------------------------
Cash 164,627
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 9,523,099
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 524,398
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 36,181
- -----------------------------------------------------------------------------------------------------
Total assets $222,963,982
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable to custodian $482,110
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased 6,100,608
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 469,762
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 28,894,557
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 11,333
- -----------------------------------------------------------------------------------------------------
Reimbursement fee 22,214
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 9,455
- -----------------------------------------------------------------------------------------------------
Total liabilities $35,990,039
- -----------------------------------------------------------------------------------------------------
Net assets $186,973,943
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $539,313,818
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 29,848,033
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (382,187,908)
- -----------------------------------------------------------------------------------------------------
Total $186,973,943
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 22,722,466
- -----------------------------------------------------------------------------------------------------
Class A shares
Net assets $101,059,083
- -----------------------------------------------------------------------------------------------------
Shares outstanding 12,173,858
- -----------------------------------------------------------------------------------------------------
Net asset value per share $8.30
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$8.30) $8.81
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
Net assets $61,352,566
- -----------------------------------------------------------------------------------------------------
Shares outstanding 7,544,245
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.13
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $20,210,247
- -----------------------------------------------------------------------------------------------------
Shares outstanding 2,487,949
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.12
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $4,179,038
- -----------------------------------------------------------------------------------------------------
Shares outstanding 495,526
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $8.43
- -----------------------------------------------------------------------------------------------------
Class R shares
Net assets $173,009
- -----------------------------------------------------------------------------------------------------
Shares outstanding 20,888
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $8.28
- -----------------------------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
FOR YEAR ENDED 8/31/03
NET INVESTMENT INCOME (LOSS)
Income
- -----------------------------------------------------------------------------------------------------
Dividends $389,820
- -----------------------------------------------------------------------------------------------------
Interest 54,884
- -----------------------------------------------------------------------------------------------------
Income on securities loaned 36,132
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (10,830)
- -----------------------------------------------------------------------------------------------------
Total investment income $470,006
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $789,507
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 45,749
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 110,376
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 215,659
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 300,399
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 103,201
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R) 360
- -----------------------------------------------------------------------------------------------------
Administrative fee 10,442
- -----------------------------------------------------------------------------------------------------
Custodian fee 50,985
- -----------------------------------------------------------------------------------------------------
Printing 70,997
- -----------------------------------------------------------------------------------------------------
Postage 46,370
- -----------------------------------------------------------------------------------------------------
Auditing fees 40,800
- -----------------------------------------------------------------------------------------------------
Legal fees 9,659
- -----------------------------------------------------------------------------------------------------
Transfer agent systems fee 121,579
- -----------------------------------------------------------------------------------------------------
Miscellaneous 192,959
- -----------------------------------------------------------------------------------------------------
Total expenses $2,109,042
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (24,900)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (253,946)
- -----------------------------------------------------------------------------------------------------
Net expenses $1,830,196
- -----------------------------------------------------------------------------------------------------
Net investment loss $(1,360,190)
- -----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $(11,934,784)
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions (4,707)
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions $(11,939,491)
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $46,889,567
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies (3,251)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign
currency translation $46,886,316
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency $34,946,825
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $33,586,635
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment loss $(1,360,190) $(1,912,717)
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (11,939,491) (74,736,948)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign
currency translation 46,886,316 9,083,030
- ------------------------------------------------------------- ------------ -------------
Increase (decrease) in net assets from operations $33,586,635 $(67,566,635)
- ------------------------------------------------------------- ------------ -------------
Net increase in net assets from fund share transactions $60,726,943 $26,844,551
- ------------------------------------------------------------- ------------ -------------
Total increase (decrease) in net assets $94,313,578 $(40,722,084)
- ------------------------------------------------------------- ------------ -------------
NET ASSETS
At beginning of period $92,660,365 $133,382,449
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
income of $0 and $0, respectively) $186,973,943 $92,660,365
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years (or, if
shorter, the period of the fund's operation). Certain information reflects financial results for a single fund share. The total
returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund (assuming
reinvestment of all distributions). This information has been audited by the fund's independent auditors, whose report,
together with the fund's financial statements, are included in this report.
FOR YEARS ENDED 8/31
CLASS A 2003 2002 2001 2000 1999
Net asset value, beginning of period $6.25 $10.70 $28.03 $18.34 $11.49
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.07) $(0.11) $(0.14) $(0.17) $(0.08)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 2.12 (4.34) (16.69) 14.44 7.44
- -------------------------------------------------- -------- ----------- ---------- ---------- ----------
Total from investment operations $2.05 $(4.45) $(16.83) $14.27 $7.36
- -------------------------------------------------- -------- ----------- ---------- ---------- ----------
LESS DISTRIBUTIONS
From net realized gain on investments and
foreign currency transactions $-- $-- $(0.18) $(4.58) $(0.51)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.32) -- --
- -------------------------------------------------- -------- ----------- ---------- ---------- ----------
From paid-in capital -- -- --+++ -- --
- -------------------------------------------------- -------- ----------- ---------- ---------- ----------
Total distributions $-- $-- $(0.50) $(4.58) $(0.51)
- -------------------------------------------------- -------- ----------- ---------- ---------- ----------
Net asset value, end of period $8.30 $6.25 $10.70 $28.03 $18.34
- -------------------------------------------------- -------- ----------- ---------- ---------- ----------
Total return (%)(+) 32.80 (41.53) (61.02) 87.93 65.25
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.52 1.51 1.52 1.40 1.17
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.05) (1.22) (0.87) (0.81) (0.83)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 162 210 413 294 104
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $101,059 $53,142 $66,358 $57,382 $1,658
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective April 14, 2000, subject to reimbursement by the fund, the investment adviser contractually agreed under a
temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive of management,
distribution and service fees. In consideration, the fund pays the investment adviser a reimbursement fee not greater than
0.40% of average daily net assets. Prior to April 14, 2000, the investment adviser and the distributor waived their fees.
To the extent actual expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.09) $(0.13) $(0.14) $(0.27) $(0.20)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.76 1.74 1.55 1.84 2.42
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.29) (1.45) (0.90) (1.25) (2.08)
- ------------------------------------------------------------------------------------------------------------------------------
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(+) 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.
Financial Highlights - continued
FOR YEARS ENDED 8/31
PERIOD ENDED
CLASS B 2003 2002 2001 8/31/2000*
Net asset value, beginning of period $6.16 $10.61 $27.95 $17.86
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.11) $(0.17) $(0.25) $(0.14)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 2.08 (4.28) (16.64) 10.23
- -------------------------------------------------- ------- ------- -------- --------
Total from investment operations $1.97 $(4.45) $(16.89) $10.09
- -------------------------------------------------- ------- ------- -------- --------
LESS DISTRIBUTIONS
From net realized gain on investments and
foreign currency transactions $-- $-- $(0.17) $--
- -------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.28) --
- -------------------------------------------------- ------- ------- -------- --------
From paid-in capital -- -- --+++ --
- -------------------------------------------------- ------- ------- -------- --------
Total distributions $-- $-- $(0.45) $--
- -------------------------------------------------- ------- ------- -------- --------
Net asset value, end of period $8.13 $6.16 $10.61 $27.95
- -------------------------------------------------- ------- ------- -------- --------
Total return (%) 31.98 (41.94) (61.28) 56.49++
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.18 2.16 2.17 2.14+
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.71) (1.87) (1.52) (1.52)+
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 162 210 413 294
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $61,353 $25,997 $44,369 $48,845
- -------------------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense
reimbursement agreement to pay all of the fund's operating expenses, exclusive of management, distribution and
service fees. In consideration, the fund paid the investment adviser a reimbursement fee not greater than 0.40% of
average daily net assets. To the extent actual expenses were over this limitation, the net investment loss per share
and the ratios would have been:
Net investment loss $(0.12) $(0.19) $(0.25) $(0.18)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.42 2.39 2.20 2.58+
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.95) (2.10) (1.55) (1.96)+
- -------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of Class B shares, April 14, 2000, through August 31, 2000.
+ 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 fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
PERIOD ENDED
CLASS C 2003 2002 2001 8/31/2000*
Net asset value, beginning of period $6.16 $10.61 $27.95 $17.86
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.11) $(0.17) $(0.25) $(0.15)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 2.07 (4.28) (16.64) 10.24
- -------------------------------------------------- ------- ------- -------- --------
Total from investment operations $1.96 $(4.45) $(16.89) $10.09
- -------------------------------------------------- ------- ------- -------- --------
LESS DISTRIBUTIONS
From net realized gain on investments and
foreign currency transactions $-- $-- $(0.17) $--
- -------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.28) --
- -------------------------------------------------- ------- ------- -------- --------
From paid-in capital -- -- --+++ --
- -------------------------------------------------- ------- ------- -------- --------
Total distributions $-- $-- $(0.45) $--
- -------------------------------------------------- ------- ------- -------- --------
Net asset value, end of period $8.12 $6.16 $10.61 $27.95
- -------------------------------------------------- ------- ------- -------- --------
Total return (%) 31.82 (41.94) (61.27) 56.49++
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.18 2.16 2.17 2.14+
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.71) (1.87) (1.52) (1.52)+
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 162 210 413 294
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $20,210 $10,476 $17,298 $17,410
- -------------------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense
reimbursement agreement to pay all of the fund's operating expenses, exclusive of management, distribution and
service fees. In consideration, the fund paid the investment adviser a reimbursement fee not greater than 0.40% of
average daily net assets. To the extent actual expenses were over this limitation, the net investment loss per share
and the ratios would have been:
Net investment loss $(0.12) $(0.19) $(0.25) $(0.19)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.42 2.39 2.20 2.58+
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.95) (2.10) (1.55) (1.96)+
- -------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the Class C shares, April 14, 2000, through August 31, 2000.
+ 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 fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS I 2003 2002 2001 2000 1999
Net asset value, beginning of period $6.33 $10.79 $28.08 $18.34 $11.50
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.05) $(0.08) $(0.09) $(0.12) $(0.22)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 2.15 (4.38) (16.68) 14.44 7.57
- -------------------------------------------------- ------ ------- ------- ------ ------
Total from investment operations $2.10 $(4.46) $(16.77) $14.32 $7.35
- -------------------------------------------------- ------ ------- ------- ------ ------
LESS DISTRIBUTIONS
From net realized gain on investments and
foreign currency transactions $-- $-- $(0.19) $(4.58) $(0.51)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.33) -- --
- -------------------------------------------------- ------ ------- ------- ------ ------
From paid-in capital -- -- --+++ -- --
- -------------------------------------------------- ------ ------- ------- ------ ------
Total distributions $-- $-- $(0.52) $(4.58) $(0.51)
- -------------------------------------------------- ------ ------- ------- ------ ------
Net asset value, end of period $8.43 $6.33 $10.79 $28.08 $18.34
- -------------------------------------------------- ------ ------- ------- ------ ------
Total return (%) 33.18 (41.33) (60.69) 88.31 65.25
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.17 1.16 1.17 1.09 1.17
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.71) (0.87) (0.53) (0.57) (0.84)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 162 210 413 294 104
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $4,179 $3,045 $5,357 $11,216 $2,530
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective April 14, 2000, subject to reimbursement by the fund, the investment adviser contractually agreed under a
temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive of management fee.
In consideration, the fund pays the investment adviser a reimbursement fee not greater than 0.40% of average daily
net assets. Prior to April 14, 2000, the investment adviser and the distributor waived their fees. To the extent
actual expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.06) $(0.10) $(0.10) $(0.21) $(0.41)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.41 1.39 1.20 1.53 1.92
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.95) (1.10) (0.56) (1.01) (1.59)
- ------------------------------------------------------------------------------------------------------------------------------
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR PERIOD ENDED 8/31
CLASS R 2003*
Net asset value, beginning of period $6.17
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.08)
- ------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 2.19
- ------------------------------------------------------------------ --------
Total from investment operations $2.11
- ------------------------------------------------------------------ --------
Net asset value, end of period $8.28
- ------------------------------------------------------------------ --------
Total return (%) 34.20++
- ------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.64+
- ------------------------------------------------------------------------------
Net investment loss (1.22)+
- ------------------------------------------------------------------------------
Portfolio turnover 162
- ------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $173
- ------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually
agreed under a temporary expense reimbursement agreement to pay all of the
fund's operating expenses, exclusive of management, distribution and
service fees. In consideration, the fund paid the investment adviser a
reimbursement fee not greater than 0.40% of average daily net assets. To
the extent actual expenses were over this limitation, the net investment
loss per share and the ratios would have been:
Net investment loss $(0.10)
- ------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
Expenses## 1.88+
- ------------------------------------------------------------------------------
Net investment loss (1.46)+
- ------------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002,
through August 31, 2003.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Technology 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
accounting principles generally accepted in the United States of America
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 in the fund's portfolio for which
market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Short-term obligations in the fund's portfolio
are valued at amortized cost, which constitutes fair value as determined by
the Board of Trustees. Short-term obligations with a remaining maturity in
excess of 60 days will be valued upon dealer-supplied valuations. Portfolio
investments for which market quotations are not readily available, or whose
values have been materially affected by events occurring after the close of
their primary markets, are valued at fair value as determined in good faith by
or at the direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize a
joint trading account for the purpose of entering into one or more repurchase
agreements.
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 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. The
dividend and interest income earned on the securities loaned is accounted for
in the same manner as other dividend and interest income.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend 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. During the period, the fund's custodian fees were reduced by $1,124
under this arrangement. The fund has entered into a directed brokerage
agreement, under which the broker will credit the fund a portion of the
commissions generated, to offset certain expenses of the fund. For the period,
the fund's other expenses were reduced by $23,776 under this agreement. These
amounts are 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. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions.
The fund paid no distributions for the years ended August 31, 2003 and August
31, 2002.
During the year ended August 31, 2003, accumulated net investment loss
decreased by $1,360,190, accumulated net realized loss on investments and
foreign currency transactions decreased by $4,707, and paid-in capital
decreased by $1,364,897 due to differences between book and tax accounting for
currency transactions and net operating losses. This change had no effect on
the net assets or net asset value per share.
As of August 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(361,065,435)
------------------------------------------------------------------
Unrealized appreciation 26,018,772
------------------------------------------------------------------
Post-October capital loss deferral (17,293,212)
------------------------------------------------------------------
Post-October capital loss deferrals represent losses realized during the
current fiscal year, but recognized for tax purposes in the next fiscal year.
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration.
EXPIRATION DATE
August 31, 2007 $(1,836,344)
------------------------------------------------------------------
August 31, 2008 (7,671,099)
------------------------------------------------------------------
August 31, 2009 (114,220,557)
------------------------------------------------------------------
August 31, 2010 (162,445,817)
------------------------------------------------------------------
August 31, 2011 (74,891,618)
------------------------------------------------------------------
Total $(361,065,435)
------------------------------------------------------------------
The availability of a portion of these respective capital loss carryforwards,
which were acquired on August 22, 2003, in connection with the MFS Global
Telecommunications Fund acquisition, may be limited in a given year.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses. Class B shares
will convert to Class A shares approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with 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 0.75% of the fund's average daily net assets.
The fund has a temporary expense reimbursement agreement whereby MFS has
contractually agreed to pay all of the fund's operating expenses, exclusive of
management, distribution, and service fees. The fund in turn will pay MFS an
expense reimbursement fee not greater than 0.40% of average daily net assets for
Class A, Class B, Class C, Class I and Class R. To the extent that the expense
reimbursement fee exceeds the fund's actual expenses, the excess will be applied
to amounts paid by MFS in prior years. At August 31, 2003, aggregate
unreimbursed expenses amounted to $158,361. The reimbursement plan expired on
April 1, 2003. MFS instituted a new plan through December 31, 2003.
The fund pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and 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 inactive Trustees and an unfunded
retirement benefit deferral plan for active Trustees. Included in Trustees'
compensation is a net increase of $36,098 as a result of the change in the
fund's pension liability under this plan and a pension expense of $586 for
inactive trustees for the year ended August 31, 2003. The Trustees are
currently waiving their right to receive compensation from this fund.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
at the following annual percentages of the fund's average daily net assets:
First $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
$12,381 for the year ended August 31, 2003, 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, Class C
and Class R 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 an annual
percentage of its average daily net assets attributable to certain share
classes 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
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A CLASS B CLASS C CLASS R
Distribution Fee 0.10% 0.75% 0.75% 0.25%
- --------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50%
- --------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the year ended August 31, 2003, amounted to:
CLASS A CLASS B CLASS C CLASS R
Service Fee Retained by MFD $20,866 $329 $31 $--
- --------------------------------------------------------------------------------
Fees incurred under the distribution plan during the year ended August 31,
2003, were as follows:
CLASS A CLASS B CLASS C CLASS R
Total Distribution Plan 0.35% 1.00% 1.00% 0.50%
- --------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within, for class A shares, 12
months following the purchase, and, for Class C shares, the first year from
the end of the calendar month of 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 from the end of the calendar month of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended August 31, 2003, were as
follows:
CLASS A CLASS B CLASS C CLASS R
Contingent Deferred Sales Charges
Imposed $741 $69,979 $3,442 $--
- --------------------------------------------------------------------------------
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
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$182,698,766 and $170,698,048, 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 $186,694,349
------------------------------------------------------------------
Gross unrealized appreciation $27,719,520
------------------------------------------------------------------
Gross unrealized depreciation (1,698,192)
------------------------------------------------------------------
Net unrealized appreciation $26,021,328
------------------------------------------------------------------
(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:
Year ended 8/31/03 Year ended 8/31/02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 9,448,114 $63,395,440 12,133,829 $115,096,456
- -----------------------------------------------------------------------------------------------------------
Shares issued in connection with
acquisition of MFS Global
Telecommunications Fund 1,839,638 14,901,068 -- --
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (7,616,011) (50,311,511) (9,835,893) (90,929,354)
- -----------------------------------------------------------------------------------------------------------
Net increase 3,671,741 $27,984,997 2,297,936 $24,167,102
- -----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 3,032,467 $19,714,861 1,838,580 $17,217,584
- -----------------------------------------------------------------------------------------------------------
Shares issued in connection with
acquisition of MFS Global
Telecommunications Fund 2,762,550 21,934,645 -- --
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (2,469,022) (15,806,043) (1,801,545) (15,356,633)
- -----------------------------------------------------------------------------------------------------------
Net increase 3,325,995 $25,843,463 37,035 $1,860,951
- -----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 849,500 $5,510,207 1,423,347 $13,137,398
- -----------------------------------------------------------------------------------------------------------
Shares issued in connection with
acquisition of MFS Global
Telecommunications Fund 968,256 7,678,267 -- --
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (1,031,392) (6,564,065) (1,352,411) (11,898,518)
- -----------------------------------------------------------------------------------------------------------
Net increase 786,364 $6,624,409 70,936 $1,238,880
- -----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 329,752 $2,279,072 306,677 $2,701,685
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (315,329) (2,147,421) (322,150) (3,124,067)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) 14,423 $131,651 (15,473) $(422,382)
- -----------------------------------------------------------------------------------------------------------
Period ended 8/31/03*
SHARES AMOUNT
CLASS R SHARES
Shares sold 95,762 $713,389
- -------------------------------------------------------------------------
Shares reacquired (74,874) (570,966)
- -------------------------------------------------------------------------
Net increase 20,888 $142,423
- -------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002, through August 31, 2003.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million 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, 2003, was $638. The fund had no significant borrowings during
the year.
(7) ACQUISITIONS
At close of business on August 22, 2003, the fund acquired all of the assets
and liabilities of the MFS Global Telecommunications Fund. The acquisition was
accomplished by a tax-free exchange of 1,839,638, 2,762,550, and 968,256 shares
of Class A, Class B and Class C of the fund valued at $14,901,068, $21,934,645,
and $7,678,267, respectively, for all of the assets and liabilities of MFS
Global Telecommunications Fund. The MFS Global Telecommunications Fund then
converted all of its outstanding shares of the fund and distributed those
shares to its shareholders. The MFS Global Telecommunication Fund's net assets
on that date were $44,513,980, including $2,654,484 of unrealized appreciation,
$0 of accumulated net investment income and $(201,803,373) of accumulated net
realized loss on investments and foreign currency transactions. These assets
were combined with those of the fund. The aggregate net assets of the fund
after the acquisition were $181,944,611.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust I and Shareholders of
MFS Technology Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Technology Fund (the Fund) (one of the portfolios constituting MFS Series
Trust I), including the portfolio of investments, as of August 31, 2003, 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 periods indicated therein. 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, 2003, 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
Technology Fund at August 31, 2003, 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 its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
October 10, 2003
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust I, of
which the fund is a series, including their principal occupations, which, unless specific dates are shown, are
of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer, and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington
STEPHEN E. CAVAN (born 11/06/53) Funds, Treasurer (prior to September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company, Vice
STEPHANIE A. DESISTO (born 10/01/53) President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President (November Massachusetts Financial Services Company, Senior
2002 to April 2003); ING Groep N.V./Aeltus Vice President
Investment Management, Senior Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Cohn, Sherratt and Smith, and Ms. O'Neill, have served in their capacity as Trustee of the
Trust continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu, and
Ms. Smith, were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr.
Parke has served as Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR AUDITORS
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA
02116-3741
DIRECTOR OF GLOBAL EQUITY RESEARCH
David A. Antonelli(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
If applicable, in January 2004, shareholders will be mailed a Form 1099-DIV
reporting the federal tax status of all distributions paid during the calendar
year 2003.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
SCT-ANN-10/03 111M
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/03
MFS(R) Research Growth and
Income Fund
A path for pursuing opportunity
[MFS Logo](R)
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) RESEARCH GROWTH AND INCOME FUND
Seeks long-term growth of capital, current income and growth of income.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- ----------------------------------------------------
FINANCIAL STATEMENTS 19
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 29
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT 36
- ----------------------------------------------------
TRUSTEES AND OFFICERS 37
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 39
- ----------------------------------------------------
FEDERAL TAX INFORMATION 40
- ----------------------------------------------------
CONTACT INFORMATION 41
- ----------------------------------------------------
ASSET ALLOCATION 42
- --------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
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
MFS Investment Management(R)
September 15, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
MARKET ENVIRONMENT
The 12-month period ended August 31, 2003 was marked by volatility but, in the
end, rewarded long-term investors with better results than they had
experienced in quite some time. Nearly all asset classes showed positive
performance for the period, and a second-quarter 2003 rally gave investors in
U.S. stocks their best quarter in many years.
Modest economic improvements and slightly stronger corporate earnings sparked
a stock market rally in October and November 2002. The stock markets cooled in
the winter months of 2003 because of mixed economic signals and an increase in
geopolitical tensions. However, the market began a rebound in mid-March that
continued almost without pause for the balance of the reporting period.
Technology and utilities & communications were among the market's leaders
during the rallies.
DETRACTORS FROM PERFORMANCE
Although the technology sector and the utilities and communications sector
contributed strong absolute returns to fund performance, they detracted from
performance relative to the fund's benchmark because we were underweighted in
both areas during the October/November rally. Since then, we have brought both
sector weightings in line with the benchmark.
Our investments in Microsoft and Network Associates detracted from performance
throughout the period, and so did our decision not to own Intel - one of the
better performing stocks for the period. Microsoft posted positive results for
the period but did not perform as well as some of the other technology stocks.
Network Associates, a network management and security provider, missed its
earnings estimates and its stock price declined. However, as of the end of the
period, we continue to own the stock because we like the company's longer-term
prospects and its new product flow.
- -----------------------------------------------
TOP 5 STOCK HOLDINGS
AS OF 8/31/03
CITIGROUP, INC. 3.9%
Diversified financial services company
- -----------------------------------------------
GENERAL ELECTRIC CO. 3.4%
Diversified manufacturing and
financial services conglomerate
- -----------------------------------------------
WYETH 3.1%
Pharmaceutical and health care
products company
- -----------------------------------------------
MICROSOFT CORP. 2.6%
Computer software and systems company
- -----------------------------------------------
SCHERING-PLOUGH CORP. 2.2%
Pharmaceutical products company
- -----------------------------------------------
The portfolio is actively managed, and current
holdings may be different.
- -----------------------------------------------
The utilities and communications sector, particularly the telecommunications
industry, rebounded sharply during the period because of progress made in
cleaning up their balance sheets. Our analysts had favored the telecom
companies with stronger balance sheets, but the companies that delivered the
strongest returns were companies such as Nextel and AT&T Wireless, both of
which had a significant amount of debt on their books. The stock price of
Verizon, a wireless and wireline communications provider, rose significantly
during the period; however, we did not own the stock for a large portion of
its rise.
Sears Roebuck was one of our biggest disappointments for the period. The stock
declined in the fall of 2002 after the company announced that the quality of
its credit card portfolio was worse than the firm had previously known or
disclosed. The company's stock price rose in 2003 after Sears announced that
it would sell its troubled credit card business to focus more closely on
restructuring its retail franchise, which helped to recoup some of the earlier
losses.
CONTRIBUTORS TO PERFORMANCE
Biotechnology and medical products stocks, as well as financial services
turned in the strongest performance for the period. In biotechnology, Genzyme
and Genentech were strong contributors for the period. Investors overreacted
to near-term events at Genzyme and its stock fell to excessively low levels.
As sales picked up for the firm, and its developmental drugs showed promise,
the price of the stock rebounded. Genentech's stock price received a lift from
successful early trials of its colorectal cancer drug, Avastin. In medical
technology, investors boosted the stock prices of Thoratec and Hologic in
anticipation of new product releases from both companies.
The price of Tenet Healthcare stock dropped sharply in 2002 when the company
announced it was being investigated for its Medicare billing practices. Our
analysts looked closely at the company and thought that it had very valuable
assets. We bought the stock after the bad news had come out and it has since
rebounded.
Strong stock selection in financial services made solid contributions to fund
performance for the period. MBNA, FleetBoston, and Merrill Lynch were
standouts in the group. Throughout the difficult 2002 market, investment
banking firm Merrill Lynch cut costs more deeply than many of the other firms
that we follow. When the market rallied, the company's stock price rose higher
than its competitors because of its earlier efforts.
MBNA announced in early 2003 that it had to make a one-time increase to its
reserves for sub-prime credit card business. (The term sub-prime refers to
card holders with weak credit histories.) That increase reduced the company's
revenues and its stock price declined as a result. We purchased the stock
after it made the announcement because the company had also announced that it
was deemphasizing this part of its business. With the improvement in the
economy, and the company's further moves to reduce its exposure to sub-prime
debt, investors returned to the stock, it rose back to previous levels, and
the fund received a nice boost to performance.
In the fall of 2002, investors became concerned about FleetBoston's loan
exposure in the volatile telecommunications industry and in Latin America,
particularly Brazil. However, in 2003, the telecom industry stabilized and
concerns abated about Brazil when the country's new president proved to be
more business friendly than many had thought. Fleet's stock price rose and
that also contributed to fund performance.
/s/ David A. Antonelli
David A. Antonelli
Director of Global Equity Research
The committee of MFS Global Equity Research Analysts is responsible for the
day-to-day management of the fund under the general supervision of Mr.
Antonelli.
The opinions expressed in this report are those of the Director of Global
Equity Research and are current only through the end of the period of the
report as stated on the cover. These views are subject to change at any time
based on market and other conditions, and no forecasts can be guaranteed.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 8/31/03
- -------------------------------------------------------------------------------
The following information illustrates the historical performance of the fund's
original share class in comparison to its benchmarks. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including the reinvestment of any
dividends and capital gains distributions. 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. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. (See Notes to Performance Summary.)
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, 2003. Index information is from January 2,
1996.)
MFS Research Growth Standard & Poor's
and Income Fund - 500 Stock
Class A Index
1/96 $10,339 $ 9,425
8/97 15,110 14,290
8/99 22,836 19,546
8/01 20,089 17,899
8/03 18,462 16,790
TOTAL RETURNS
- ----------------------
Average annual
without sales charge
- ----------------------
Class
Share class inception date 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/2/1996 11.67% -8.94% 2.02% 7.83%
- ------------------------------------------------------------------------------
B 1/2/1997 11.04% -9.52% 1.35% 7.13%
- ------------------------------------------------------------------------------
C 1/2/1997 10.99% -9.53% 1.32% 7.10%
- ------------------------------------------------------------------------------
I 1/2/1997 12.06% -8.61% 2.35% 8.14%
- ------------------------------------------------------------------------------
R 12/31/2002 11.59% -8.96% 2.00% 7.82%
- ------------------------------------------------------------------------------
- ----------------------
Average annual
- ----------------------
Comparative Benchmarks
- ------------------------------------------------------------------------------
Average large-cap core fund+ 9.72% -13.48% 1.44% 6.25%
- ------------------------------------------------------------------------------
Standard & Poor's 500 Stock
Index# 12.06% -11.42% 2.48% 8.33%
- ------------------------------------------------------------------------------
- ----------------------
Average annual
with sales charge
- ----------------------
Share class 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 5.25% -10.72% 0.82% 7.00%
- ------------------------------------------------------------------------------
B 7.04% -10.42% 0.99% 7.13%
- ------------------------------------------------------------------------------
C 9.99% -9.53% 1.32% 7.10%
- ------------------------------------------------------------------------------
I and R class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- ----------------------
Cumulative without
sales charge
- ----------------------
- ------------------------------------------------------------------------------
A 11.67% -24.49% 10.51% 78.15%
- ------------------------------------------------------------------------------
B 11.04% -25.92% 6.91% 69.55%
- ------------------------------------------------------------------------------
C 10.99% -25.95% 6.78% 69.20%
- ------------------------------------------------------------------------------
I 12.06% -23.68% 12.31% 82.16%
- ------------------------------------------------------------------------------
R 11.59% -24.54% 10.43% 78.02%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 2003. Index information is from January
2, 1996.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
STANDARD & POOR'S 500 STOCK INDEX - a commonly used measure of the broad U.S.
stock market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflects the deduction of the maximum
5.75% sales charge. Class B results, including sales charge, reflects the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results, including sales
charge, redeemed within one year from the end of the calendar month of
purchase reflects the deduction of the 1% CDSC. Class I shares have no sales
charges and are available only to certain investors. Class R shares have no
sales charges and are available only to certain retirement plans.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
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 and financial statements for details. All
results are historical and assume the reinvestment of dividends and
capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
- -----------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 8/31/03
- -----------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 97.5%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - 91.5%
- -----------------------------------------------------------------------------------------------------
Aerospace - 1.4%
- -----------------------------------------------------------------------------------------------------
Alliant Techsystems, Inc.* 4,820 $245,531
- -----------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 21,040 1,077,879
- -----------------------------------------------------------------------------------------------------
Northrop Grumman Corp. 8,010 764,795
- -----------------------------------------------------------------------------------------------------
$2,088,205
- -----------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.0%
- -----------------------------------------------------------------------------------------------------
Anheuser-Busch Cos., Inc. 28,630 $1,475,590
- -----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.3%
- -----------------------------------------------------------------------------------------------------
Liz Claiborne, Inc. 12,120 $417,776
- -----------------------------------------------------------------------------------------------------
Automotive - 1.1%
- -----------------------------------------------------------------------------------------------------
Borg Warner Automotive, Inc. 8,130 $579,019
- -----------------------------------------------------------------------------------------------------
Johnson Controls, Inc. 5,710 565,290
- -----------------------------------------------------------------------------------------------------
Lear Corp.* 7,100 394,405
- -----------------------------------------------------------------------------------------------------
$1,538,714
- -----------------------------------------------------------------------------------------------------
Banks & Credit Companies - 11.8%
- -----------------------------------------------------------------------------------------------------
American Express Co. 13,100 $590,155
- -----------------------------------------------------------------------------------------------------
Bank of America Corp. 34,630 2,744,427
- -----------------------------------------------------------------------------------------------------
Bank One Corp. 17,600 694,672
- -----------------------------------------------------------------------------------------------------
Banknorth Group, Inc. 26,130 734,253
- -----------------------------------------------------------------------------------------------------
Citigroup, Inc. 127,808 5,540,477
- -----------------------------------------------------------------------------------------------------
FleetBoston Financial Corp. 56,224 1,663,668
- -----------------------------------------------------------------------------------------------------
Golden West Financial Corp. 8,300 716,041
- -----------------------------------------------------------------------------------------------------
MBNA Corp. 33,890 790,993
- -----------------------------------------------------------------------------------------------------
Mellon Financial Corp. 21,870 685,624
- -----------------------------------------------------------------------------------------------------
National City Corp. 21,150 670,032
- -----------------------------------------------------------------------------------------------------
SouthTrust Corp. 23,510 681,555
- -----------------------------------------------------------------------------------------------------
SunTrust Banks, Inc. 25,830 1,578,988
- -----------------------------------------------------------------------------------------------------
$17,090,885
- -----------------------------------------------------------------------------------------------------
Biotechnology - 2.4%
- -----------------------------------------------------------------------------------------------------
Amgen, Inc.* 10,300 $678,770
- -----------------------------------------------------------------------------------------------------
Bruker Biosciences Corp.* 128,000 588,800
- -----------------------------------------------------------------------------------------------------
Genentech, Inc.* 9,400 746,360
- -----------------------------------------------------------------------------------------------------
Genzyme Corp.* 10,460 493,189
- -----------------------------------------------------------------------------------------------------
Millipore Corp.* 22,700 1,030,580
- -----------------------------------------------------------------------------------------------------
$3,537,699
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.1%
- -----------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.* 26,900 $1,213,728
- -----------------------------------------------------------------------------------------------------
Comcast Corp., "A"* 6,500 193,375
- -----------------------------------------------------------------------------------------------------
Cumulus Media, Inc., "A"* 12,000 227,640
- -----------------------------------------------------------------------------------------------------
EchoStar Communications Corp., "A"* 29,490 1,088,181
- -----------------------------------------------------------------------------------------------------
Scripps (E.W.) Co. 4,440 384,460
- -----------------------------------------------------------------------------------------------------
$3,107,384
- -----------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.1%
- -----------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 16,870 $1,492,826
- -----------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 29,710 1,597,804
- -----------------------------------------------------------------------------------------------------
$3,090,630
- -----------------------------------------------------------------------------------------------------
Business Services - 0.9%
- -----------------------------------------------------------------------------------------------------
DST Systems, Inc.* 6,560 $259,776
- -----------------------------------------------------------------------------------------------------
SunGard Data Systems, Inc.* 37,070 1,045,374
- -----------------------------------------------------------------------------------------------------
$1,305,150
- -----------------------------------------------------------------------------------------------------
Chemicals - 2.0%
- -----------------------------------------------------------------------------------------------------
3M Co. 8,140 $1,159,706
- -----------------------------------------------------------------------------------------------------
Air Products & Chemicals, Inc. 14,080 666,265
- -----------------------------------------------------------------------------------------------------
Dow Chemical Co. 9,930 342,883
- -----------------------------------------------------------------------------------------------------
Lyondell Chemical Co. 46,940 671,242
- -----------------------------------------------------------------------------------------------------
$2,840,096
- -----------------------------------------------------------------------------------------------------
Computer Software - 4.6%
- -----------------------------------------------------------------------------------------------------
Microsoft Corp. 139,690 $3,704,579
- -----------------------------------------------------------------------------------------------------
Network Associates, Inc.* 33,580 467,434
- -----------------------------------------------------------------------------------------------------
Oracle Corp.* 103,030 1,316,723
- -----------------------------------------------------------------------------------------------------
VERITAS Software Corp.* 34,210 1,179,561
- -----------------------------------------------------------------------------------------------------
$6,668,297
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.8%
- -----------------------------------------------------------------------------------------------------
BearingPoint, Inc.* 23,000 $188,600
- -----------------------------------------------------------------------------------------------------
International Business Machines Corp. 29,560 2,424,216
- -----------------------------------------------------------------------------------------------------
$2,612,816
- -----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.2%
- -----------------------------------------------------------------------------------------------------
Gillette Co. 17,580 $570,647
- -----------------------------------------------------------------------------------------------------
Kimberly-Clark Corp. 29,000 1,482,190
- -----------------------------------------------------------------------------------------------------
Procter & Gamble Co. 12,270 1,071,048
- -----------------------------------------------------------------------------------------------------
$3,123,885
- -----------------------------------------------------------------------------------------------------
Consumer Services - 0.6%
- -----------------------------------------------------------------------------------------------------
Career Education Corp.* 11,720 $528,924
- -----------------------------------------------------------------------------------------------------
Education Management Corp.* 6,290 384,696
- -----------------------------------------------------------------------------------------------------
$913,620
- -----------------------------------------------------------------------------------------------------
Containers - 0.7%
- -----------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.* 60,760 $958,793
- -----------------------------------------------------------------------------------------------------
Electrical Equipment - 4.7%
- -----------------------------------------------------------------------------------------------------
American Standard Cos., Inc.* 890 $71,369
- -----------------------------------------------------------------------------------------------------
Black & Decker Corp. 7,900 337,962
- -----------------------------------------------------------------------------------------------------
Emerson Electric Co. 4,220 235,307
- -----------------------------------------------------------------------------------------------------
General Electric Co. 161,110 4,764,023
- -----------------------------------------------------------------------------------------------------
Rockwell Automation, Inc. 14,680 399,590
- -----------------------------------------------------------------------------------------------------
Tyco International Ltd. 45,070 927,540
- -----------------------------------------------------------------------------------------------------
$6,735,791
- -----------------------------------------------------------------------------------------------------
Electronics - 3.1%
- -----------------------------------------------------------------------------------------------------
Analog Devices, Inc.* 39,280 $1,610,480
- -----------------------------------------------------------------------------------------------------
Intersil Corp.* 8,800 256,344
- -----------------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 10,990 439,160
- -----------------------------------------------------------------------------------------------------
PMC-Sierra, Inc.* 147,700 2,106,202
- -----------------------------------------------------------------------------------------------------
$4,412,186
- -----------------------------------------------------------------------------------------------------
Energy - Integrated - 2.6%
- -----------------------------------------------------------------------------------------------------
ConocoPhillips 18,130 $1,012,379
- -----------------------------------------------------------------------------------------------------
Exxon Mobil Corp. 74,572 2,811,365
- -----------------------------------------------------------------------------------------------------
$3,823,744
- -----------------------------------------------------------------------------------------------------
Entertainment - 1.6%
- -----------------------------------------------------------------------------------------------------
InterActive Corp.* 8,900 $329,389
- -----------------------------------------------------------------------------------------------------
Viacom, Inc., "B" 42,770 1,924,650
- -----------------------------------------------------------------------------------------------------
$2,254,039
- -----------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.6%
- -----------------------------------------------------------------------------------------------------
Walgreen Co. 26,840 $874,179
- -----------------------------------------------------------------------------------------------------
Food & Non Alcoholic Beverages - 2.6%
- -----------------------------------------------------------------------------------------------------
Heinz (H.J.) Co. 9,490 $307,096
- -----------------------------------------------------------------------------------------------------
Kellogg Co. 15,180 508,986
- -----------------------------------------------------------------------------------------------------
PepsiCo, Inc. 67,239 2,994,825
- -----------------------------------------------------------------------------------------------------
$3,810,907
- -----------------------------------------------------------------------------------------------------
Furniture & Appliances - 0.1%
- -----------------------------------------------------------------------------------------------------
Stanley Works 6,100 $184,647
- -----------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.7%
- -----------------------------------------------------------------------------------------------------
Hilton Hotels Corp. 29,370 $448,774
- -----------------------------------------------------------------------------------------------------
MGM Mirage, Inc.* 4,100 148,666
- -----------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Co. 10,780 364,687
- -----------------------------------------------------------------------------------------------------
$962,127
- -----------------------------------------------------------------------------------------------------
General Merchandise - 3.8%
- -----------------------------------------------------------------------------------------------------
Kohl's Corp.* 10,800 $683,100
- -----------------------------------------------------------------------------------------------------
Sears, Roebuck & Co. 25,100 1,104,902
- -----------------------------------------------------------------------------------------------------
Target Corp. 49,330 2,002,798
- -----------------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 28,280 1,673,328
- -----------------------------------------------------------------------------------------------------
$5,464,128
- -----------------------------------------------------------------------------------------------------
Home Construction - 0.2%
- -----------------------------------------------------------------------------------------------------
Masco Corp. 12,040 $298,472
- -----------------------------------------------------------------------------------------------------
Insurance - 3.8%
- -----------------------------------------------------------------------------------------------------
American International Group, Inc. 12,200 $726,754
- -----------------------------------------------------------------------------------------------------
ChoicePoint, Inc.* 5,980 234,715
- -----------------------------------------------------------------------------------------------------
Chubb Corp. 13,800 937,572
- -----------------------------------------------------------------------------------------------------
MetLife, Inc. 23,410 665,312
- -----------------------------------------------------------------------------------------------------
St. Paul Cos., Inc. 18,480 642,365
- -----------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., "B" 54,508 844,329
- -----------------------------------------------------------------------------------------------------
U.S.I. Holdings Corp.* 58,690 695,476
- -----------------------------------------------------------------------------------------------------
UnumProvident Corp. 50,500 712,050
- -----------------------------------------------------------------------------------------------------
$5,458,573
- -----------------------------------------------------------------------------------------------------
Leisure & Toys - 0.4%
- -----------------------------------------------------------------------------------------------------
Hasbro, Inc. 28,500 $527,250
- -----------------------------------------------------------------------------------------------------
Machinery & Tools - 0.9%
- -----------------------------------------------------------------------------------------------------
AGCO Corp.* 33,200 $733,056
- -----------------------------------------------------------------------------------------------------
Deere & Co. 4,220 238,472
- -----------------------------------------------------------------------------------------------------
Ingersoll Rand Co. Ltd. 5,700 339,264
- -----------------------------------------------------------------------------------------------------
$1,310,792
- -----------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.9%
- -----------------------------------------------------------------------------------------------------
Caremark Rx, Inc.* 6,560 $164,853
- -----------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.* 69,900 1,121,895
- -----------------------------------------------------------------------------------------------------
$1,286,748
- -----------------------------------------------------------------------------------------------------
Medical Equipment - 2.3%
- -----------------------------------------------------------------------------------------------------
AmerisourceBergen Corp. 10,100 $587,921
- -----------------------------------------------------------------------------------------------------
Hologic, Inc.* 102,180 1,685,970
- -----------------------------------------------------------------------------------------------------
North American Scientific, Inc.* 30,900 317,961
- -----------------------------------------------------------------------------------------------------
Thoratec Corp.* 47,410 711,624
- -----------------------------------------------------------------------------------------------------
$3,303,476
- -----------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.2%
- -----------------------------------------------------------------------------------------------------
Equitable Resources, Inc. 650 $25,655
- -----------------------------------------------------------------------------------------------------
Southern Union Co. 19,300 325,398
- -----------------------------------------------------------------------------------------------------
$351,053
- -----------------------------------------------------------------------------------------------------
Oil Services - 0.9%
- -----------------------------------------------------------------------------------------------------
GlobalSantaFe Corp. 12,872 $319,226
- -----------------------------------------------------------------------------------------------------
Halliburton Co. 22,830 552,029
- -----------------------------------------------------------------------------------------------------
Smith International, Inc.* 9,460 369,791
- -----------------------------------------------------------------------------------------------------
$1,241,046
- -----------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.2%
- -----------------------------------------------------------------------------------------------------
Dell, Inc.* 87,020 $2,839,462
- -----------------------------------------------------------------------------------------------------
Flextronics International Ltd.* 13,830 186,567
- -----------------------------------------------------------------------------------------------------
Solectron Corp.* 27,500 163,075
- -----------------------------------------------------------------------------------------------------
$3,189,104
- -----------------------------------------------------------------------------------------------------
Pharmaceuticals - 8.6%
- -----------------------------------------------------------------------------------------------------
Abbott Laboratories, Inc. 47,900 $1,930,370
- -----------------------------------------------------------------------------------------------------
Forest Laboratories, Inc.* 61,000 2,867,000
- -----------------------------------------------------------------------------------------------------
Pharmaceutical Product Development, Inc.* 7,100 181,121
- -----------------------------------------------------------------------------------------------------
Schering-Plough Corp. 200,400 3,044,076
- -----------------------------------------------------------------------------------------------------
Wyeth 102,200 4,379,270
- -----------------------------------------------------------------------------------------------------
$12,401,837
- -----------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
- -----------------------------------------------------------------------------------------------------
Waste Management, Inc. 10,330 $274,881
- -----------------------------------------------------------------------------------------------------
Printing & Publishing - 0.4%
- -----------------------------------------------------------------------------------------------------
Lamar Advertising Co., "A"* 4,680 $156,359
- -----------------------------------------------------------------------------------------------------
New York Times Co., "A" 9,520 422,593
- -----------------------------------------------------------------------------------------------------
$578,952
- -----------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.4%
- -----------------------------------------------------------------------------------------------------
Union Pacific Corp. 9,940 $605,744
- -----------------------------------------------------------------------------------------------------
Real Estate - 1.3%
- -----------------------------------------------------------------------------------------------------
American Financial Realty Trust * 38,700 $557,280
- -----------------------------------------------------------------------------------------------------
Freddie Mac 25,570 1,359,045
- -----------------------------------------------------------------------------------------------------
$1,916,325
- -----------------------------------------------------------------------------------------------------
Restaurants - 0.5%
- -----------------------------------------------------------------------------------------------------
McDonald's Corp. 25,200 $564,984
- -----------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 3,940 152,281
- -----------------------------------------------------------------------------------------------------
$717,265
- -----------------------------------------------------------------------------------------------------
Specialty Stores - 2.5%
- -----------------------------------------------------------------------------------------------------
Home Depot, Inc. 70,220 $2,258,275
- -----------------------------------------------------------------------------------------------------
Hot Topic, Inc.* 15,640 557,723
- -----------------------------------------------------------------------------------------------------
TJX Cos., Inc. 36,200 784,092
- -----------------------------------------------------------------------------------------------------
$3,600,090
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.3%
- -----------------------------------------------------------------------------------------------------
ADTRAN, Inc. 12,200 $668,560
- -----------------------------------------------------------------------------------------------------
Andrew Corp.* 17,700 219,126
- -----------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 117,660 2,253,189
- -----------------------------------------------------------------------------------------------------
Motorola, Inc. 21,600 231,768
- -----------------------------------------------------------------------------------------------------
$3,372,643
- -----------------------------------------------------------------------------------------------------
Telephone Services - 2.9%
- -----------------------------------------------------------------------------------------------------
CenturyTel, Inc. 26,880 $934,349
- -----------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc.* 150,200 848,630
- -----------------------------------------------------------------------------------------------------
Commonwealth Telephone Enterprises, Inc.* 19,840 782,886
- -----------------------------------------------------------------------------------------------------
Verizon Communications, Inc. 45,840 1,619,069
- -----------------------------------------------------------------------------------------------------
$4,184,934
- -----------------------------------------------------------------------------------------------------
Tobacco - 1.8%
- -----------------------------------------------------------------------------------------------------
Altria Group, Inc. 61,760 $2,545,747
- -----------------------------------------------------------------------------------------------------
Trucking - 1.0%
- -----------------------------------------------------------------------------------------------------
United Parcel Service, Inc. 16,210 $1,017,340
- -----------------------------------------------------------------------------------------------------
Werner Enterprises, Inc. 16,400 405,900
- -----------------------------------------------------------------------------------------------------
$1,423,240
- -----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.6%
- -----------------------------------------------------------------------------------------------------
Dominion Resources, Inc. 10,590 $641,542
- -----------------------------------------------------------------------------------------------------
Exelon Corp. 8,620 507,718
- -----------------------------------------------------------------------------------------------------
PG&E Corp.* 39,300 871,281
- -----------------------------------------------------------------------------------------------------
Public Service Enterprise Group, Inc. 20,630 873,474
- -----------------------------------------------------------------------------------------------------
TXU Corp. 39,730 874,060
- -----------------------------------------------------------------------------------------------------
$3,768,075
- -----------------------------------------------------------------------------------------------------
Wireless Communications - 0.4%
- -----------------------------------------------------------------------------------------------------
Sprint Corp. (PCS Group)* 115,300 $598,407
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $132,245,942
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 6.0%
- -----------------------------------------------------------------------------------------------------
Bermuda - 1.3%
- -----------------------------------------------------------------------------------------------------
Accenture Ltd., "A" (Business Services)* 28,840 $610,254
- -----------------------------------------------------------------------------------------------------
Ace Ltd. (Insurance) 22,250 716,450
- -----------------------------------------------------------------------------------------------------
XL Capital Ltd. (Insurance) 8,050 609,788
- -----------------------------------------------------------------------------------------------------
$1,936,492
- -----------------------------------------------------------------------------------------------------
Canada - 1.6%
- -----------------------------------------------------------------------------------------------------
EnCana Corp. (Natural Gas - Pipeline) 30,140 $1,130,386
- -----------------------------------------------------------------------------------------------------
Intrawest Corp. (Gaming & Lodging) 10,900 140,719
- -----------------------------------------------------------------------------------------------------
Talisman Energy, Inc. (Energy - Independent) 23,000 1,091,126
- -----------------------------------------------------------------------------------------------------
$2,362,231
- -----------------------------------------------------------------------------------------------------
France - 0.6%
- -----------------------------------------------------------------------------------------------------
Total S.A., "B" (Energy - Independent) 5,100 $783,254
- -----------------------------------------------------------------------------------------------------
Hong Kong - 0.1%
- -----------------------------------------------------------------------------------------------------
Radica Games Ltd. (Gaming & Lodging)* 19,300 $139,732
- -----------------------------------------------------------------------------------------------------
Netherlands - 1.4%
- -----------------------------------------------------------------------------------------------------
ASML Holding N.V. (Electronics)* 38,940 $619,146
- -----------------------------------------------------------------------------------------------------
STMicroelectronics N.V. (Electronics) 55,060 1,373,196
- -----------------------------------------------------------------------------------------------------
$1,992,342
- -----------------------------------------------------------------------------------------------------
United Kingdom - 1.0%
- -----------------------------------------------------------------------------------------------------
Willis Group Holdings Ltd. (Insurance) 21,270 $616,617
- -----------------------------------------------------------------------------------------------------
BHP Billiton PLC (Metals & Mining) 117,900 772,778
- -----------------------------------------------------------------------------------------------------
$1,389,395
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $8,603,446
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $126,408,188) $140,849,388
- -----------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.5%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Bank Consolidated Discount Notes,
due 9/02/03, at Amortized Cost $3,604 $3,603,916
- -----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 3.3%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at
Identified Cost 4,741,894 $4,741,894
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $134,753,998) $149,195,198
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (3.3)% (4,743,527)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $144,451,671
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 8/31/03
ASSETS
Investments, at value, including $4,578,328 of securities
on loan (identified cost, $134,753,998) $149,195,198
- -----------------------------------------------------------------------------------------------------
Cash 800
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 165,214
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 205,226
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 175,128
- -----------------------------------------------------------------------------------------------------
Other assets 1,687
- -----------------------------------------------------------------------------------------------------
Total assets $149,743,253
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares reacquired $293,018
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased 112,405
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 4,741,894
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 7,610
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 1,286
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 8,845
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 126,524
- -----------------------------------------------------------------------------------------------------
Total liabilities $5,291,582
- -----------------------------------------------------------------------------------------------------
Net assets $144,451,671
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $158,209,777
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 14,441,220
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (28,136,009)
- -----------------------------------------------------------------------------------------------------
Accumulated net investment loss (63,317)
- -----------------------------------------------------------------------------------------------------
Total $144,451,671
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 10,579,709
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
Net assets $53,704,110
- -----------------------------------------------------------------------------------------------------
Shares outstanding 3,843,920
- -----------------------------------------------------------------------------------------------------
Net asset value per share $13.97
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 X $13.97) $14.82
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $75,007,104
- -----------------------------------------------------------------------------------------------------
Shares outstanding 5,565,497
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $13.48
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $15,325,256
- -----------------------------------------------------------------------------------------------------
Shares outstanding 1,141,074
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $13.43
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $397,910
- -----------------------------------------------------------------------------------------------------
Shares outstanding 27,979
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $14.22
- -----------------------------------------------------------------------------------------------------
Class R shares
Net assets $17,291
- -----------------------------------------------------------------------------------------------------
Shares outstanding 1,239
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $13.96
- -----------------------------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
FOR YEAR ENDED 8/31/03
NET INVESTMENT LOSS
Income
- -----------------------------------------------------------------------------------------------------
Dividends $2,267,891
- -----------------------------------------------------------------------------------------------------
Interest 43,791
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (16,860)
- -----------------------------------------------------------------------------------------------------
Total investment income $2,294,822
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $855,132
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 10,029
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 137,257
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 165,878
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 688,437
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 149,508
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R) 26
- -----------------------------------------------------------------------------------------------------
Administrative fee 12,640
- -----------------------------------------------------------------------------------------------------
Custodian fee 66,682
- -----------------------------------------------------------------------------------------------------
Printing 57,745
- -----------------------------------------------------------------------------------------------------
Postage 22,077
- -----------------------------------------------------------------------------------------------------
Auditing fees 28,896
- -----------------------------------------------------------------------------------------------------
Legal fees 216
- -----------------------------------------------------------------------------------------------------
Registration 76,193
- -----------------------------------------------------------------------------------------------------
Miscellaneous 204,623
- -----------------------------------------------------------------------------------------------------
Total expenses $2,475,339
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (22,600)
- -----------------------------------------------------------------------------------------------------
Net expenses $2,452,739
- -----------------------------------------------------------------------------------------------------
Net investment loss $(157,917)
- -----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $(6,608,509)
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions 14,603
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions $(6,593,906)
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $20,395,788
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (53)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $20,395,735
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency $13,801,829
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $13,643,912
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment loss $(157,917) $(670,368)
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (6,593,906) (20,408,950)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 20,395,735 (8,867,309)
- ------------------------------------------------------------ ------------ -------------
Increase (decrease) in net assets from operations $13,643,912 $(29,946,627)
- ------------------------------------------------------------ ------------ -------------
DISTRIBUTIONS
From net realized gain on investments and foreign currency
transactions
- -----------------------------------------------------------------------------------------------------
Class A $-- $(1,128,550)
- -----------------------------------------------------------------------------------------------------
Class B -- (1,616,091)
- -----------------------------------------------------------------------------------------------------
Class C -- (394,943)
- -----------------------------------------------------------------------------------------------------
Class I -- (8,862)
- ------------------------------------------------------------ ------------ -------------
Total distributions declared to shareholders $-- (3,148,446)
- ------------------------------------------------------------ ------------ -------------
Net decrease in net assets from fund share
transactions $(10,654,181) $(2,783,812)
- ------------------------------------------------------------ ------------ -------------
Total increase (decrease) in net assets $2,989,731 $(35,878,885)
- ----------------------------------------------------------------------------- -------------
NET ASSETS
At beginning of year $141,461,940 $177,340,825
- -----------------------------------------------------------------------------------------------------
At end of year (including accumulated net investment loss
of $63,317 and $70,085, respectively) $144,451,671 $141,461,940
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years.
Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by
which an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of all distributions). This
information has been audited by the fund's independent auditors, whose report, together with the fund's financial statements,
are included in this report.
FOR YEARS ENDED 8/31
CLASS A 2003 2002 2001 2000 1999
Net asset value, beginning of period $12.51 $15.15 $18.82 $17.87 $14.42
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.04 $0.00+++ $0.02 $0.02 $0.05
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.42 (2.38) (3.69) 2.26 4.03
- -------------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $1.46 $(2.38) $(3.67) $2.28 $4.08
- -------------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income $-- $-- $-- $-- $(0.01)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions -- (0.26) -- (1.33) (0.62)
- -------------------------------------------------- ------ ------ ------ ------ ------
Total distributions $-- $(0.26) $-- $(1.33) $(0.63)
- -------------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $13.97 $12.51 $15.15 $18.82 $17.87
- -------------------------------------------------- ------ ------ ------ ------ ------
Total return (%)(+) 11.67 (16.00) (19.50) 13.76 28.64
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.47 1.37 1.32 1.28 1.23
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.29 0.03 0.12 0.13 0.30
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 121 100 78 74 96
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $53,704 $50,366 $63,319 $73,910 $76,635
- ------------------------------------------------------------------------------------------------------------------------------
(S) Prior to January 1, 2000, the distributor voluntarily waived all or a portion of its distribution fee for the periods
indicated below. If this fee had been incurred by the fund, the net investment income per share and the ratios would have
been:
Net investment income $0.01 $0.03
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.32 1.33
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.09 0.20
- ------------------------------------------------------------------------------------------------------------------------------
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(+) 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.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS B 2003 2002 2001 2000 1999
Net asset value, beginning of period $12.14 $14.81 $18.52 $17.72 $14.40
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.04) $(0.09) $(0.09) $(0.09) $(0.08)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 1.38 (2.32) (3.62) 2.22 4.02
- ---------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $1.34 $(2.41) $(3.71) $2.13 $3.94
- ---------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain on investments and
foreign currency transactions $-- $(0.26) $-- $(1.33) $(0.62)
- ---------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $13.48 $12.14 $14.81 $18.52 $17.72
- ---------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 11.04 (16.57) (20.03) 12.98 27.74
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 2.12 2.02 1.97 1.96 1.98
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.36) (0.62) (0.53) (0.55) (0.45)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 121 100 78 74 96
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $75,007 $73,146 $91,455 $111,380 $112,000
- ------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS C 2003 2002 2001 2000 1999
Net asset value, beginning of period $12.10 $14.76 $18.46 $17.67 $14.36
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.04) $(0.09) $(0.09) $(0.09) $(0.08)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 1.37 (2.31) (3.61) 2.21 4.01
- ---------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $1.33 $(2.40) $(3.70) $2.12 $3.93
- ---------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain on investments and
foreign currency transactions $-- $(0.26) $-- $(1.33) $(0.62)
- ---------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $13.43 $12.10 $14.76 $18.46 $17.67
- ---------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 10.99 (16.56) (20.04) 12.96 27.66
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 2.12 2.02 1.97 1.96 1.98
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.35) (0.62) (0.52) (0.55) (0.46)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 121 100 78 74 96
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $15,325 $17,521 $22,081 $20,432 $22,074
- ------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 8/31
CLASS I 2003 2002 2001 2000 1999
Net asset value, beginning of period $12.69 $15.31 $18.95 $17.93 $14.47
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.08 $0.06 $0.08 $0.08 $0.09
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 1.45 (2.42) (3.72) 2.27 4.05
- ---------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $1.53 $(2.36) $(3.64) $2.35 $4.14
- ---------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income $-- $-- $-- $-- $(0.06)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions -- (0.26) -- (1.33) (0.62)
- ---------------------------------------------- ------ ------ ------ ------ ------
Total distributions $-- $(0.26) $-- $(1.33) $(0.68)
- ---------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $14.22 $12.69 $15.31 $18.95 $17.93
- ---------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 12.06 (15.70) (19.21) 14.12 28.95
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 1.12 1.02 0.97 0.97 0.98
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.65 0.38 0.47 0.45 0.56
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 121 100 78 74 96
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $398 $428 $486 $554 $742
- ------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
FOR PERIOD ENDED 8/31
CLASS R 2003*
Net asset value, beginning of period $12.02
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.00)+++
- ----------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.94###
- ---------------------------------------------------------------- -------
Total from investment operations $1.94
- ---------------------------------------------------------------- -------
Net asset value, end of period $13.96
- ---------------------------------------------------------------- -------
Total return (%) 16.14++
- ----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 1.74+
- ----------------------------------------------------------------------------
Net investment loss (0.04)+
- ----------------------------------------------------------------------------
Portfolio turnover 121
- ----------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $17
- ----------------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002,
through August 31, 2003.
+ 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 fees paid indirectly.
### The per share amount is not in accordance with the net realized and
unrealized gain/loss for the period because of the timing of sales of fund
shares and the amount of per share realized and unrealized gains and losses
at such time.
See notes to financial statements.
- -------------------------------------------------------------------------------
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
accounting principles generally accepted in the United States of America
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 in the fund's portfolio for which
market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Short-term obligations in the fund's portfolio
are valued at amortized cost, which constitutes fair value as determined by
the Board of Trustees. Short-term obligations with a remaining maturity in
excess of 60 days will be valued upon dealer-supplied valuations. Portfolio
investments for which market quotations are not readily available, or whose
values have been materially affected by events occurring after the close of
their primary markets, are valued at fair value as determined in good faith by
or at the direction of the Board of 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 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.
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 foreign currency exchange 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 tax reporting purposes as required by federal income tax
regulations. 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.
Some securities may be purchased on a "when-issued" or "forward delivery"
basis, which means that the securities will be delivered to the fund at a
future date, usually beyond customary settlement time.
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. During the period, the fund's custodian fees were reduced by $1,465
under this arrangement. The fund has entered into a directed brokerage
agreement, under which the broker will credit the fund a portion of the
commissions generated, to offset certain expenses of the fund. For the period,
the fund's other expenses were reduced by $21,135 under this agreement. These
amounts are 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.
The tax character of distributions declared for the years ended August 31, 2003
and August 31, 2002 was as follows:
8/31/03 8/31/02
Distributions declared from:
Ordinary income $-- $--
- --------------------------------------------------------------------------------
Long-term capital gain -- 3,148,446
- --------------------------------------------------------------------------------
$-- $3,148,446
- --------------------------------------------------------------------------------
Tax return of capital -- --
- --------------------------------------------------------------------------------
Total distributions declared $-- $3,148,446
- --------------------------------------------------------------------------------
The fund paid no distributions for the year ended August 31, 2003.
During the year ended August 31, 2003, accumulated net investment loss
decreased by $164,685, accumulated net realized loss on investments and
foreign currency transactions increased by $14,603, and paid-in capital
decreased by $150,082 due to differences between book and tax accounting for
currency transactions and net operating losses. This change had no effect on
the net assets or net asset value per share.
As of August 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $--
------------------------------------------------------------------
Undistributed long-term capital gain --
------------------------------------------------------------------
Capital loss carryforward (24,066,551)
------------------------------------------------------------------
Unrealized appreciation 13,196,622
------------------------------------------------------------------
Post October losses deferred (2,824,860)
------------------------------------------------------------------
Other temporary differences (63,317)
------------------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or.
EXPIRATION DATE
August 31, 2010 $(8,969,653)
------------------------------------------------------------------
August 31, 2011 (15,096,898)
------------------------------------------------------------------
Total $(24,066,551)
------------------------------------------------------------------
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses. Class B shares
will convert to Class A shares, approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at the following annual
rates:
First $500 million of average net assets 0.65%
---------------------------------------------------------------
Average net assets in excess of $500 million 0.55%
---------------------------------------------------------------
The fund pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and 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). On January
1, 2002, the Trustees terminated the Independent Trustee unfunded defined
benefit plan for active Trustees and converted it to an unfunded retirement
benefit deferral plan for active Trustees. Under the new plan, the unfunded
pension liability was converted into an equivalent value of notional shares of
the fund that will fluctuate with the performance of the fund. Included in
Trustees' compensation is a net decrease of $5,885 as a result of the change in
the fund's pension liability under this plan and a pension expense of $2,192 for
inactive trustees for the year ended August 31, 2003.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
at the following annual percentages of the fund's average daily net assets:
First $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
$16,035 for the year ended August 31, 2003, 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, Class C,
and Class R 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 an annual
percentage of its average daily net assets attributable to certain share
classes 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
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A CLASS B CLASS C CLASS R
Distribution Fee 0.10% 0.75% 0.75% 0.25%
- --------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50%
- --------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the year ended August 31, 2003, amounted to:
CLASS A CLASS B CLASS C CLASS R
Service Fee Retained by MFD $1,891 $690 $527 $--
- --------------------------------------------------------------------------------
Fees incurred under the distribution plan during the year ended August 31,
2003, were as follows:
CLASS A CLASS B CLASS C CLASS R
Total Distribution Plan 0.35% 1.00% 1.00% 0.50%
- --------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within, for Class A shares, 12
months following the purchase, and, for Class C shares, the first year from
the end of the calendar month of 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 from the end of the calendar month of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended August 31, 2003 were
as follows:
CLASS A CLASS B CLASS C CLASS R
Contingent Deferred Sales
Charges Imposed $665 $141,882 $1,116 $--
- --------------------------------------------------------------------------------
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
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$155,762,365 and $166,476,768, 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 $135,998,596
------------------------------------------------------------------
Gross unrealized appreciation $14,441,200
------------------------------------------------------------------
Gross unrealized depreciation (1,244,598)
------------------------------------------------------------------
Net unrealized appreciation $13,196,602
------------------------------------------------------------------
(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:
Year ended 8/31/03 Year ended 8/31/02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 1,098,510 $13,829,346 1,498,096 $21,864,535
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 68,918 1,038,561
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (1,281,219) (15,706,599) (1,721,179) (24,321,246)
- -----------------------------------------------------------------------------------------------------------
Net decrease (182,709) $(1,877,253) (154,165) $(1,418,150)
- -----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,136,225 $13,674,207 1,745,951 $24,800,725
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 95,040 1,396,433
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (1,594,020) (18,851,858) (1,993,628) (27,248,804)
- -----------------------------------------------------------------------------------------------------------
Net decrease (457,795) $(5,177,651) (152,637) $(1,051,646)
- -----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 215,541 $2,588,515 545,612 $7,748,636
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 20,781 304,231
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (522,037) (6,134,419) (614,622) (8,395,997)
- -----------------------------------------------------------------------------------------------------------
Net decrease (306,496) $(3,545,904) (48,229) $(343,130)
- -----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 6,948 $87,434 5,935 $87,258
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 498 7,640
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (12,684) (157,063) (4,483) (65,784)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) (5,736) $(69,629) 1,950 $29,114
- -----------------------------------------------------------------------------------------------------------
Period ended 8/31/03*
SHARES AMOUNT
CLASS R SHARES
Shares sold 1,239 $16,256
- -----------------------------------------------------------------------
Net increase 1,239 $16,256
- -----------------------------------------------------------------------
* For the period from the inception of Class R shares, December 31, 2002,
through August 31, 2003.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million 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, 2003 was $442. The fund had no borrowings during the year.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust I and 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) (one of the portfolios constituting
MFS Series Trust I), including the portfolio of investments, as of August 31,
2003, 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 periods indicated therein.
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, 2003, 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, 2003, 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 its financial highlights for each
of the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
October 10, 2003
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust I, of
which the fund is a series, including their principal occupations, which, unless specific dates are shown, are
of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer, and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington
STEPHEN E. CAVAN (born 11/06/53) Funds, Treasurer (prior to September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company, Vice
STEPHANIE A. DESISTO (born 10/01/53) President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President (November Massachusetts Financial Services Company, Senior
2002 to April 2003); ING Groep N.V./Aeltus Vice President
Investment Management, Senior Vice President
(prior to November 2002)
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames, Cohn, Sherratt and Smith, and Ms. O'Neill, have served in their capacity as Trustee of the
Trust continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu, and
Ms. Smith, were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr.
Parke has served as Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR AUDITORS
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA
02116-3741
DIRECTOR OF GLOBAL EQUITY RESEARCH
David A. Antonelli(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
[Graphic Omitted]
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
RGI-ANN-10/03 34M
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in the instructions to Form N-CSR that applies
to the Registrant's principal executive officer and principal financial and
accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. J. Atwood Ives and Ward Smith, members of the Audit Committee, have been
determined by the Board of Trustees in their reasonable business judgment to
meet the definition of "audit committee financial expert" as such term is
defined in the instructions to Form N-CSR. In addition, Messrs. Ives and Smith
are both "independent" members of the Audit Committee as defined in the
instructions to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time. Applicable for annual reports filed for the first
fiscal year ending after December 15, 2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
If applicable, not applicable at this time. Applicable for annual reports
covering periods ending on or after the compliance date for the listing
standards applicable to the particular issuer. Listed issuers must be in
compliance with the new listing rules by the earlier of the registrant's first
annual shareholders meeting after January 15, 2004 or October 31, 2004.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Applicable for annual reports filed on or after July 1, 2003.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form
N-CSR, the registrant's principal financial officer and principal executive
officer have concluded that those disclosure controls and procedures provide
reasonable assurance that the material information required to be disclosed
by the registrant on this report is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the registrant's last fiscal half-year (the registrant's second fiscal
half-year in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 10. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends
to satisfy the Item 2 requirements through filing of an exhibit: Code of
Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14 under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18
of the United States Code (18 U.S.C. 1350) as an exhibit. A certification
furnished pursuant to this paragraph will not be deemed "filed" for the
purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise
subject to the liability of that section. Such certification will not be
deemed to be incorporated by reference into any filing under the Securities
Act of 1933 or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference: Attached hereto
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST I
-------------------------------------------------------------------
By (Signature and Title)* /s/ JOHN W. BALLEN
-----------------------------------------------------
John W. Ballen, President
Date: October 24, 2003
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ JOHN W. BALLEN
------------------------------------------------------
John W. Ballen, President
(Principal Executive Officer)
Date: October 24, 2003
------------------
By (Signature and Title)* /s/ RICHARD M. HISEY
------------------------------------------------------
Richard M. Hisey, Treasurer
(Principal Financial Officer and Accounting Officer)
Date: October 24, 2003
------------------
* Print name and title of each signing officer under his or her signature.