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)
James R. Bordewick, Jr.
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: February 29, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Mutual Funds
SEMIANNUAL REPORT 2/29/04
MFS(R) RESEARCH INTERNATIONAL FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
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MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
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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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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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MFS(R) RESEARCH INTERNATIONAL FUND
The fund seeks capital appreciation.
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To view MFS' statement concerning regulatory issues affecting the mutual fund
industry and the firm, please visit mfs.com.
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TABLE OF CONTENTS
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MFS PRIVACY POLICY
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LETTER FROM THE CEO 1
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MFS ORIGINAL RESEARCH(R) 4
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MANAGEMENT REVIEW 5
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PERFORMANCE SUMMARY 9
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PORTFOLIO OF INVESTMENTS 12
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FINANCIAL STATEMENTS 18
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NOTES TO FINANCIAL STATEMENTS 37
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TRUSTEES AND OFFICERS 49
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MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 51
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CONTACT INFORMATION 52
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ASSET ALLOCATION 53
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LETTER FROM THE CEO
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Dear Shareholders,
[Photo of Robert J. Manning]
As the firm's new Chief Executive Officer, I want to thank you for your
continued trust in MFS and tell you about the series of actions we have taken
since our recent settlements with the regulators. These actions are designed
to enhance the governance structure of the MFS funds, tighten our business
practices, and strengthen the management team at MFS.
In early February, Robert Pozen joined MFS as non-executive Chairman. A
seasoned veteran of the mutual fund industry, Bob has held prior positions as
President of Fidelity Management & Research Company, as Associate General
Counsel of the Securities and Exchange Commission, and as a visiting professor
at Harvard Law School.
In an effort to develop and implement policies that we believe will set a new
standard in regulatory compliance, MFS has hired two new senior executives.
Jeffrey Carp is joining us as General Counsel with responsibility for all of
our legal affairs. Previously he was a senior partner with the law firm of
Hale and Dorr LLP. Also joining MFS in the new position of Executive Vice
President of Regulatory Affairs is Maria Dwyer, who returned to the firm after
serving as a senior executive at Fidelity. At MFS, Maria is in charge of
compliance, internal audit, and fund treasury.
In the area of governance, we have taken steps to enhance the independence of
our funds' boards of trustees to better protect the interests of shareholders.
We have independent board chairs and at least 75% of the trustees are
independent. The trustees will appoint not only their own counsel but also an
independent compliance officer. This officer will assist the boards and their
committees in monitoring the MFS funds' compliance with federal and
state regulations.
In February, MFS reached agreements with federal and state regulators to
settle their administrative proceedings against the firm and two senior
executives in connection with market timing and related issues. Under the
terms of the settlements, we agreed to pay $225 million to compensate affected
retail fund shareholders. The $225 million will be distributed in accordance
with a distribution plan developed by an independent consultant.
We have further agreed with state regulators to reduce management fees on
certain funds we advise by approximately $25 million annually over the next
five years and to pay an administrative fine of $1 million, which will be used
for the purpose of investor education. We have introduced a set of policies
designed to protect the MFS funds and MFS fund shareholders from market timing
abuses. By July, all MFS retail funds, except money market funds, will have a
2% redemption fee on short-term trades. Our global, international, high-yield,
mid- and small-cap funds will impose the 2% fee on redemptions or exchanges of
fund shares made within 30 calendar days of a share purchase. For all other
MFS funds, except money market funds, the 2% fee will be imposed on
redemptions or exchanges made within 5 business days of a share purchase. See
the fund prospectus for more information.
We continue to use fair value pricing, a strategy that minimizes the potential
for investors to take advantage of "stale" prices. These can occur, as one
example, when funds own foreign securities whose prices close on overseas
exchanges in different time zones. At the same time, we enhanced our
monitoring of excessive trading. We did so by increasing our staff and
updating our computer systems to improve our ability to detect excessive
trading in our funds. Finally, we are supporting industry efforts to establish
a "hard" 4 p.m. close on all trading, which would prevent the possibility of
late trading.
In March, MFS reached a second settlement with the SEC under an administrative
proceeding resolving the SEC's investigation into how we disclosed brokerage
allocation practices in connection with fund sales. According to the
settlement order, we did not effectively disclose the potential conflict of
interest that may arise from these arrangements.
Under the terms of the settlement, MFS has agreed to pay one dollar in
disgorgement and $50 million in penalty to MFS fund shareholders. The
settlement noted that MFS had policies in place designed to obtain best
execution of all trades of securities within MFS portfolios.
This past November, MFS eliminated the above mentioned practice of directing
brokerage commissions to certain firms in recognition of fund sales.
Additionally, we announced in March that we would ban the use of soft dollars
to acquire third-party securities research and market data. Soft dollars are
permitted under federal securities laws. In fact, it is a common industry
practice to use a portion of the brokerage commissions to pay for certain
research and execution products and services that are provided to asset
managers. MFS will now pay cash out of its own pocket for third-party research
and market data.
MFS continues to be financially strong, with more than U.S. $140 billion (as
of 12/31/03) in assets under management, which continued to be stable during
the first quarter of 2004. We also have the full support of our parent
company, Sun Life Financial, an internationally diversified financial services
firm that manages more than U.S. $269 billion (as of 12/31/03).
We chose to settle these two proceedings with the SEC so we could concentrate
on serving our fund shareholders. As Chief Investment Officer, my focus is on
ensuring that our portfolio teams work closely together and take full
advantage of all the resources available to them to deliver the best possible
investment performance.
As the inventor of the open-end mutual fund in America in 1924, MFS has a
strong tradition and culture of innovation. By strengthening our business and
governance practices, we believe we have an unprecedented opportunity to set a
new standard in the mutual fund industry.
As I look ahead, I do so with confidence. The collaboration among MFS
employees, many of whom have worked at the firm for their entire careers,
continues as we remain singularly dedicated to our clients. It has been our
sincere privilege to serve you, and we thank you for the confidence that you
have shown in MFS.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer
MFS Investment Management(R)
March 15, 2004
Note to Shareholders: On February 6, 2004, Jeffrey L. Shames retired as
Chairman of MFS. Robert Pozen was named as non-executive Chairman. Also,
on February 6, 2004, Robert J. Manning was appointed Chief Executive Officer,
President, and Chief Investment Officer.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
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MFS ORIGINAL RESEARCH(R)
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THE MFS(R) DIFFERENCE
For 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
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MANAGEMENT REVIEW
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MARKET ENVIRONMENT
For most of the reporting period, markets around the world were lifted by a
stronger economic environment. Worldwide monetary policies continued to be
conducive to growth as central banks generally kept interest rates low.
Capital spending increases in the United States, positive consumer and
business confidence throughout the world, and optimism for increased consumer
spending in Europe kept markets moving upward until the end of February 2004
when the markets retreated somewhat from their highs.
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TOP 5 SECTOR WEIGHTINGS
AS OF 2/29/04
FINANCIAL SERVICES 24.6%
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UTILITIES & COMMUNICATIONS 13.1%
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HEALTH CARE 9.5%
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LEISURE 8.0%
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ENERGY 7.5%
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The portfolio is actively managed, and current
holdings may be different.
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DETRACTORS FROM PERFORMANCE
The fund underperformed its benchmark, the MSCI (Morgan Stanley Capital
International) EAFE (Europe Australasia Far East) Index, over the period.
Stock selection in the technology, leisure, and utilities and communications
sectors detracted from relative returns. In the technology sector, we had
invested a portion of fund assets in companies that supplied parts used in
consumer electronics. Although this subset of the technology sector had done
well early in 2003, we saw signs of waning investor appeal in the latter part
of 2003 and early 2004. Alps Electric, a Japanese electronic component
manufacturer, lowered its fourth quarter 2003 earnings estimates because, in
our view, of adverse currency changes between the Japanese yen and the U.S.
dollar. The company also indicated that its research and development costs
were higher than it had expected. The fund sold this stock during the period.
The fund owned a number of stocks in the leisure group that underperformed the
broad market, particularly media companies whose income partly depends on
advertising revenues. We had believed that the recovering global economy would
be accompanied by an increase in advertising revenues. However, those gains
have been slow to materialize, and many of our media stocks underperformed the
overall market.
Another leisure stock, Tamron, a Japanese company that makes lenses for
digital still cameras, also detracted from results. Although the cameras sold
well in 2003, we have observed increased investor skepticism about potential
returns from the product group in 2004. That skepticism, we believe,
negatively affected Tamron's stock price.
Some of the stocks the fund owned in the utilities and communications sector
provided disappointing returns for the period. Japanese company Vodafone
Holdings and Korean firm Hanaro Telecom were the two largest detractors in the
group. Vodafone Holdings, which was sold from the portfolio by period end,
missed its third-quarter earnings estimate and announced in December 2003 that
it would again delay its 3G (third generation) wireless introduction. Hanaro
Telecom used the fourth quarter of 2003 to clean out problems in its balance
sheet related to equipment write-offs and financing costs. In addition, a
number of individual but significant stakeholders in the company sold their
shares and those sales depressed the company's stock price.
Canadian brewer Molson also had a negative impact on relative fund returns.
Molson's stock price sank as a result of fierce competition in Brazil and
business disruptions at its distributor in Sao Paulo. The fund sold its
position in Molson by the end of the period.
Throughout the period, the fund maintained a small allocation to short-term
cash equivalent securities, which are used to purchase new securities and to
provide liquidity. When the stock market rose, that cash position detracted
from fund performance relative to the MSCI EAFE Index, which holds no
cash position.
CONTRIBUTORS TO PERFORMANCE
Stock selection in both the financial services and basic materials sectors
aided relative performance. Although the fund was underweighted in financial
services, which was a negative factor, a number of companies in the group
generated strong returns. Standouts included German real-estate finance
company Hypo Real Estate NPV and Irish small-business lender Anglo Irish Bank.
Hypo Real Estate, a real-estate spin-off from HypoVereinsbank, benefited from
a more positive German economic environment and a strong balance sheet. An
improved economic environment, and participation in the small-business lending
market, helped Anglo Irish Bank.
Performance results from the fund's basic materials holdings exceeded broad
market returns because of increased demand from China and the global market
recovery helped fuel results for commodities such as metals, chemicals, and
industrial gases. After years of sluggish growth and underinvestment in
developing additional capacity, the group rebounded from depressed prices.
Although the utilities and communications sector detracted from fund returns
as noted earlier, the fund benefited from owning the Indian telecommunications
company Bharti Tele-Ventures while avoiding NTT DoCoMo, the wireless
telecommunications arm of Japanese communications company Nippon Telegraph and
Telephone. We believe that Bharti's stock price rose because of growth in its
subscriber base, the growth potential of its local markets, and good results
reported for the second and third quarters of 2003. Not owning NTT DoCoMo
stock contributed to the fund's relative returns because the company's stock
price declined during the period.
Nippon Electric Glass Company was the fund's top individual stock contributor.
The company's excess inventory of CRTs (cathode ray tubes) early in the period
was absorbed by the marketplace in mid-2003 and the company's stock rebounded
by late summer. Nippon's stock price received a further lift when its liquid
crystal display business took off in the latter part of 2003. The fund sold
this stock when it reached our performance objective.
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 views expressed in this report are those of the Director of Global Equity
Research only through the end of the period of the report as stated on the
cover and do not necessarily reflect the views of MFS or any other person in
the MFS organization. These views are subject to change at any time based on
market and other conditions, and MFS disclaims any responsibility to update
such views. These views may not be relied upon as investment advice or an
indication of trading intent on behalf of any MFS Fund. References to specific
securities are not recommendations of such securities, and may not be
representative of any MFS Fund's current or future investments.
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Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment- related news.
o From Week in Review, link to MFS Global Investment Perspective for our
current view of the world.
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PERFORMANCE SUMMARY THROUGH 2/29/04
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Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Performance results reflect the percentage change
in net asset value, including the reinvestment of any dividends and capital
gains distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
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Average annual
without sales charge
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Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr Life*
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A 1/2/1997 -- 45.50% 1.95% 6.47% 7.63%
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B 1/2/1998 -- 44.67% 1.30% 5.79% 7.07%
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C 1/2/1998 -- 44.50% 1.28% 5.79% 7.05%
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I 1/2/1997 -- 46.07% 2.31% 6.85% 7.98%
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R1 12/31/2002 -- 45.18% 1.88% 6.43% 7.59%
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R2 10/31/2003 -- 45.31% 1.91% 6.44% 7.61%
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529A 7/31/2002 -- 45.05% 1.81% 6.38% 7.56%
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529B 7/31/2002 -- 44.19% 1.46% 6.16% 7.41%
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529C 7/31/2002 -- 44.28% 1.48% 6.17% 7.42%
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Average annual
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Comparative benchmarks
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Average international
fund+ 22.71% 49.85% -0.35% 2.42% 3.89%
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MSCI EAFE Index# 25.30% 54.23% 1.25% 1.54% 3.63%
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Periods less than one year are actual, not annualized.
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Average annual
with sales charge
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Share
class
6-mo 1-yr 3-yr 5-yr Life*
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A -- 37.13% -0.04% 5.22% 6.74%
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B -- 40.67% 0.31% 5.47% 7.07%
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C -- 43.50% 1.28% 5.79% 7.05%
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529A -- 36.71% -0.18% 5.13% 6.68%
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529B -- 40.19% 0.48% 5.85% 7.41%
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529C -- 43.28% 1.48% 6.17% 7.42%
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I, R1, and R2 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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A 22.78% 45.50% 5.96% 36.82% 69.20%
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B 22.43% 44.67% 3.95% 32.52% 63.05%
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C 22.38% 44.50% 3.88% 32.49% 62.87%
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I 22.95% 46.07% 7.09% 39.30% 73.19%
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R1 22.63% 45.18% 5.74% 36.53% 68.84%
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R2 22.62% 45.31% 5.83% 36.64% 68.98%
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529A 22.60% 45.05% 5.53% 36.27% 68.51%
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529B 22.11% 44.19% 4.45% 34.86% 66.78%
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529C 22.26% 44.28% 4.49% 34.92% 66.85%
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Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
January 2, 1997, through February 29, 2004. Index information is from
January 1, 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 R1 and R2 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.
The fund will charge a 2% redemption fee on proceeds from Class A, Class C,
and Class I shares redeemed (either by redeeming or exchanging) within 30 days
of acquiring (either by purchasing or exchanging) fund shares. The redemption
fee is expected to apply to Class B shares approximately the end of the third
quarter of 2004. See the prospectus for complete details.
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 expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
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.
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PORTFOLIO OF INVESTMENTS (unaudited) - 2/29/04
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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 - 93.9%
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ISSUER SHARES $ VALUE
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Foreign Stocks - 92.9%
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Australia - 1.6%
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APN News & Media Ltd. (Printing & Publishing)^* 188,414 $559,678
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Australia & New Zealand Banking Group Ltd. (Banks &
Credit Companies) 826,430 11,471,003
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News Corp. Ltd. (Broadcast & Cable TV)* 610,600 5,733,391
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$17,764,072
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Austria - 1.3%
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Erste Bank der oesterreichischen Sparkassen AG (Banks &
Credit Companies) 73,740 $10,311,978
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Telekom Austria AG (Telephone Services) 321,300 4,657,031
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$14,969,009
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Belgium - 1.1%
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Fortis (Banks & Credit Companies) 550,210 $12,746,199
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Brazil - 2.1%
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Aracruz Celulose S.A. (Forest & Paper Products)^ 317,900 $11,492,085
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Brasil Telecom Participacoes S.A. (Telephone Services) 121,900 4,646,828
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Companhia Vale do Rio Doce (Metals & Mining) 143,280 8,295,912
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$24,434,825
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Canada - 1.3%
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CoolBrands International, Inc. (Food & Non-Alcoholic
Beverages)* 156,200 $2,953,371
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EnCana Corp. (Energy - Independent) 267,760 11,555,916
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$14,509,287
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China - 0.9%
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Huaneng Power International, Inc. (Utilities -
Electric) 5,351,000 $10,070,546
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France - 5.7%
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AXA (Insurance)^ 586,450 $13,483,588
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Cap Gemini S.A. (Computer Software - Systems)^ 108,950 4,521,951
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Credit Agricole S.A. (Banks & Credit Companies) 550,321 14,172,908
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France Telecom S.A. (Telephone Services) 676,400 18,657,000
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Sanofi-Synthelabo (Pharmaceuticals)^ 199,452 13,648,145
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$64,483,592
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Germany - 2.8%
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Bayerische Motoren Werke AG (Automotive)^ 322,730 $13,804,407
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Hypo Real Estate Holding AG (Real Estate)* 257,880 7,379,349
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Linde AG (Specialty Chemicals)^ 150,090 7,896,997
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STADA Arzneimittel AG (Pharmaceuticals)^ 55,694 3,234,534
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$32,315,287
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Hong Kong - 0.8%
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CNOOC Ltd. (Energy - Independent) 2,681,500 $5,425,488
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Star Cruises Ltd. (Gaming & Lodging) 11,934,000 3,520,530
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$8,946,018
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Hungary - 0.8%
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OTP Bank Ltd. (Banks & Credit Companies)* 279,920 $9,237,360
- ----------------------------------------------------------------------------------------------
India - 0.8%
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Bharti Tele-Ventures Ltd. (Telephone Services) 1,968,420 $6,211,372
- ----------------------------------------------------------------------------------------------
HDFC Bank Ltd. (Banks & Credit Companies) 405,700 3,356,636
- ----------------------------------------------------------------------------------------------
$9,568,008
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Ireland - 1.0%
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Anglo Irish Bank Corp. PLC (Banks & Credit Companies) 334,375 $5,707,691
- ----------------------------------------------------------------------------------------------
DePfa Bank PLC (Banks & Credit Companies) 34,100 5,345,612
- ----------------------------------------------------------------------------------------------
$11,053,303
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Italy - 0.8%
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Mediaset S.p.A. (Broadcast & Cable TV)^ 336,580 $3,873,491
- ----------------------------------------------------------------------------------------------
Riunione Adriatica di Sicurta S.p.A. (Insurance) 293,940 5,346,611
- ----------------------------------------------------------------------------------------------
$9,220,102
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Japan - 21.2%
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AEON Credit Service Co. Ltd (Banks & Credit
Companies)^ 29,700 $1,658,534
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Aiful Corp. (Banks & Credit Companies) 115,400 10,184,062
- ----------------------------------------------------------------------------------------------
Bridgestone Corp. (Automotive) 560,000 8,269,144
- ----------------------------------------------------------------------------------------------
Brother Industries Ltd. (Electronics)^ 679,000 6,402,435
- ----------------------------------------------------------------------------------------------
Canon, Inc. (Personal Computers & Peripherals) 342,000 16,687,509
- ----------------------------------------------------------------------------------------------
Chiba Bank Ltd. (Banks & Credit Companies) 1,226,000 4,927,120
- ----------------------------------------------------------------------------------------------
Chugai Pharmaceutical Co. Ltd. (Pharmaceuticals)^ 906,210 13,364,804
- ----------------------------------------------------------------------------------------------
Citizen Electronics Co. Ltd. (Electronics)^ 56,100 4,519,431
- ----------------------------------------------------------------------------------------------
Fujikura Ltd. (Electrical Equipment)^ 1,656,000 8,049,947
- ----------------------------------------------------------------------------------------------
Honda Motor Co. Ltd. (Automotive)^ 383,100 16,693,880
- ----------------------------------------------------------------------------------------------
HUNET, Inc. (Real Estate)^ 514,000 1,157,541
- ----------------------------------------------------------------------------------------------
Impact 21 Co. Ltd. (Consumer Goods & Services)^ 78,600 1,856,438
- ----------------------------------------------------------------------------------------------
Jaccs Co. Ltd. (Banks & Credit Companies) 589,000 2,722,983
- ----------------------------------------------------------------------------------------------
KDDI Corp. (Telephone Services) 1,896 9,841,461
- ----------------------------------------------------------------------------------------------
Kibun Food Chemifa Co. Ltd. (Food & Non-Alcoholic
Beverages)^ 431,000 5,152,982
- ----------------------------------------------------------------------------------------------
Konica Minolta Holdings, Inc. (Electronics) 441,000 5,062,608
- ----------------------------------------------------------------------------------------------
Lawson, Inc. (Specialty Stores)^ 145,700 5,041,846
- ----------------------------------------------------------------------------------------------
Nishimatsuya Chain Co. Ltd. (Specialty Stores)^ 156,960 4,080,802
- ----------------------------------------------------------------------------------------------
Pentax Corp. (Furniture & Appliances)^ 863,000 4,432,123
- ----------------------------------------------------------------------------------------------
ROUND ONE Corp. (Entertainment)^ 3,456 6,296,004
- ----------------------------------------------------------------------------------------------
Seiko Epson Corp. (Electronics) 480,000 16,873,713
- ----------------------------------------------------------------------------------------------
Sekisui Chemical Co. Ltd. (Construction) 1,306,000 6,743,113
- ----------------------------------------------------------------------------------------------
SOFTBANK CORP. (Business Services)^ 676,900 25,034,797
- ----------------------------------------------------------------------------------------------
Stanley Electric Co. Ltd. (Electronics) 236,500 4,027,006
- ----------------------------------------------------------------------------------------------
Sumitomo Bakelite Co. Ltd. (Specialty Chemicals)^ 963,000 5,650,964
- ----------------------------------------------------------------------------------------------
Takefuji Corp. (Banks & Credit Companies)^ 159,090 11,389,058
- ----------------------------------------------------------------------------------------------
Tamron Co. Ltd. (Leisure & Toys)^ 160,000 6,723,120
- ----------------------------------------------------------------------------------------------
Tokyo Broadcasting System, Inc. (Broadcast & Cable TV) 472,700 7,663,768
- ----------------------------------------------------------------------------------------------
Tokyo Gas Co. Ltd. (Natural Gas - Distribution)^ 4,382,390 16,288,281
- ----------------------------------------------------------------------------------------------
Yamaha Corp. (Leisure & Toys) 290,400 5,383,439
- ----------------------------------------------------------------------------------------------
$242,178,913
- ----------------------------------------------------------------------------------------------
Luxembourg - 0.5%
- ----------------------------------------------------------------------------------------------
Tenaris S.A. (Oil Services) 162,350 $5,625,427
- ----------------------------------------------------------------------------------------------
Mexico - 1.7%
- ----------------------------------------------------------------------------------------------
America Movil S.A. de C.V., ADR (Telecommunications -
Wireless) 236,300 $8,426,458
- ----------------------------------------------------------------------------------------------
CEMEX S.A. de C.V. (Construction) 150,200 4,333,270
- ----------------------------------------------------------------------------------------------
Grupo Elektra S.A. de C.V. (Specialty Stores) 449,700 2,520,109
- ----------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR (Broadcast & Cable TV) 83,700 3,697,029
- ----------------------------------------------------------------------------------------------
$18,976,866
- ----------------------------------------------------------------------------------------------
Netherlands - 1.6%
- ----------------------------------------------------------------------------------------------
IHC Caland N.V. (Oil Services)* 84,680 $4,119,364
- ----------------------------------------------------------------------------------------------
Royal KPN N.V. (Telephone Services) 681,670 5,385,430
- ----------------------------------------------------------------------------------------------
VNU N.V. (Printing & Publishing)* 283,035 9,233,054
- ----------------------------------------------------------------------------------------------
$18,737,848
- ----------------------------------------------------------------------------------------------
Norway - 0.8%
- ----------------------------------------------------------------------------------------------
DnB Holding A.S.A. (Banks & Credit Companies)^ 1,401,198 $8,831,707
- ----------------------------------------------------------------------------------------------
Russia - 0.3%
- ----------------------------------------------------------------------------------------------
YUKOS Corp. (Energy - Independent)^ 59,460 $3,014,622
- ----------------------------------------------------------------------------------------------
Singapore - 0.9%
- ----------------------------------------------------------------------------------------------
DBS Group Holdings Ltd. (Banks & Credit Companies) 1,169,000 $10,098,017
- ----------------------------------------------------------------------------------------------
South Africa - 0.4%
- ----------------------------------------------------------------------------------------------
Impala Platinum Holdings Ltd. (Precious Metals &
Minerals) 55,270 $4,608,547
- ----------------------------------------------------------------------------------------------
South Korea - 3.4%
- ----------------------------------------------------------------------------------------------
Hanaro Telecom, Inc. (Telephone Services) 2,443,974 $6,853,911
- ----------------------------------------------------------------------------------------------
Hyundai Motor Co. (Automotive) 250,200 10,615,189
- ----------------------------------------------------------------------------------------------
K T & G Corp. (Tobacco)## 615,050 7,165,332
- ----------------------------------------------------------------------------------------------
Samsung Electronics Co. Ltd. (Electronics) 30,840 14,262,028
- ----------------------------------------------------------------------------------------------
$38,896,460
- ----------------------------------------------------------------------------------------------
Spain - 4.6%
- ----------------------------------------------------------------------------------------------
Altadis S.A. (Tobacco)^ 346,900 $11,178,321
- ----------------------------------------------------------------------------------------------
Banco Bilbao Vizcaya Argentina S.A. (Banks & Credit
Companies) 822,300 11,356,011
- ----------------------------------------------------------------------------------------------
Repsol YPF S.A. (Energy - Independent) 266,700 5,474,942
- ----------------------------------------------------------------------------------------------
Telefonica S.A. (Telephone Services)^ 1,505,273 24,477,293
- ----------------------------------------------------------------------------------------------
$52,486,567
- ----------------------------------------------------------------------------------------------
Sweden - 3.0%
- ----------------------------------------------------------------------------------------------
Alfa Laval AB (Machinery & Tools) 365,907 $4,925,188
- ----------------------------------------------------------------------------------------------
Atlas Copco AB (Machinery & Tools) 214,460 7,692,998
- ----------------------------------------------------------------------------------------------
Hennes & Mauritz AB (Specialty Stores) 434,120 11,628,266
- ----------------------------------------------------------------------------------------------
Sandvik AB (Machinery & Tools)^ 324,300 10,410,880
- ----------------------------------------------------------------------------------------------
$34,657,332
- ----------------------------------------------------------------------------------------------
Switzerland - 9.0%
- ----------------------------------------------------------------------------------------------
Credit Suisse Group (Banks & Credit Companies)^ 268,570 $9,796,253
- ----------------------------------------------------------------------------------------------
Givaudan S.A. (Consumer Goods & Services)^ 7,490 3,843,755
- ----------------------------------------------------------------------------------------------
Nestle S.A. (Food & Non-Alcoholic Beverages)^ 42,515 11,244,691
- ----------------------------------------------------------------------------------------------
Novartis AG (Pharmaceuticals)^ 527,380 23,296,156
- ----------------------------------------------------------------------------------------------
Roche Holding AG (Pharmaceuticals) 174,540 18,052,061
- ----------------------------------------------------------------------------------------------
Syngenta AG (Chemicals) 131,084 9,112,542
- ----------------------------------------------------------------------------------------------
Synthes-Stratec, Inc. (Medical Equipment) 3,565 3,608,345
- ----------------------------------------------------------------------------------------------
UBS AG (Banks & Credit Companies)^ 318,663 23,473,281
- ----------------------------------------------------------------------------------------------
$102,427,084
- ----------------------------------------------------------------------------------------------
United Kingdom - 24.5%
- ----------------------------------------------------------------------------------------------
Alliance and Leicester PLC (Banks & Credit Companies) 424,300 $6,850,686
- ----------------------------------------------------------------------------------------------
AstraZeneca PLC (Pharmaceuticals) 597,150 28,330,569
- ----------------------------------------------------------------------------------------------
Aviva PLC (Insurance) 1,275,981 13,378,718
- ----------------------------------------------------------------------------------------------
Barclays PLC (Banks & Credit Companies)* 1,834,350 16,496,597
- ----------------------------------------------------------------------------------------------
BG Group PLC (Energy - Independent) 1,602,860 9,445,959
- ----------------------------------------------------------------------------------------------
BHP Billiton PLC (Metals & Mining) 866,910 7,961,450
- ----------------------------------------------------------------------------------------------
BP PLC (Energy - Integrated) 753,134 37,054,193
- ----------------------------------------------------------------------------------------------
Burberry Group PLC (Apparel Manufacturers) 617,000 4,046,163
- ----------------------------------------------------------------------------------------------
Cadbury Schweppes PLC (Food & Non-Alcoholic Beverages)* 1,463,700 12,081,649
- ----------------------------------------------------------------------------------------------
Cookson Group PLC (Electronics) 7,630,000 6,241,204
- ----------------------------------------------------------------------------------------------
easyJet Airline Co. Ltd. (Airlines) 1,090,320 6,770,046
- ----------------------------------------------------------------------------------------------
Johnston Press PLC (Printing & Publishing) 779,663 7,493,568
- ----------------------------------------------------------------------------------------------
Kingfisher PLC (Specialty Stores) 2,310,790 12,866,147
- ----------------------------------------------------------------------------------------------
Legal & General Group PLC (Insurance) 5,426,870 10,088,825
- ----------------------------------------------------------------------------------------------
Next PLC (General Merchandise) 300,118 7,760,869
- ----------------------------------------------------------------------------------------------
Reckitt Benckiser PLC (Consumer Goods & Services) 478,470 12,506,369
- ----------------------------------------------------------------------------------------------
Reed Elsevier PLC (Printing & Publishing) 1,255,710 11,572,928
- ----------------------------------------------------------------------------------------------
Royal Bank of Scotland Group PLC (Banks & Credit
Companies) 827,071 26,200,138
- ----------------------------------------------------------------------------------------------
Vodafone Group PLC (Telecommunications - Wireless)* 10,601,870 26,459,885
- ----------------------------------------------------------------------------------------------
William Hill PLC (Gaming & Lodging) 694,860 6,420,146
- ----------------------------------------------------------------------------------------------
Yell Group PLC (Broadcast & Cable TV) 1,434,890 9,002,924
- ----------------------------------------------------------------------------------------------
$279,029,033
- ----------------------------------------------------------------------------------------------
Total Foreign Stocks $1,058,886,031
- ----------------------------------------------------------------------------------------------
U.S. Stock - 1.0%
- ----------------------------------------------------------------------------------------------
Business Services - 1.0%
- ----------------------------------------------------------------------------------------------
Manpower, Inc. 245,620 $10,991,495
- ----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $922,071,408) $1,069,877,526
- ----------------------------------------------------------------------------------------------
Preferred Stock - 1.3%
- ----------------------------------------------------------------------------------------------
Germany - 1.3%
- ----------------------------------------------------------------------------------------------
Porsche AG (Automotive)^ (Identified Cost,
$11,174,191) 25,373 $14,785,096
- ----------------------------------------------------------------------------------------------
Repurchase Agreement - 3.4%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ----------------------------------------------------------------------------------------------
Merrill Lynch & Co., dated 2/27/04, due 3/01/04, total
to be received $39,382,380 (secured by various U.S.
Treasury and Federal Agency obligations in a jointly
traded account), at Cost $39,379 $39,379,000
- ----------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 19.7%
- ----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Identified Cost 224,676,105 $224,676,105
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,197,300,704) $1,348,717,727
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (18.3)% (208,942,249)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,139,775,478
- ----------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
## SEC Rule 144A restriction.
See notes to financial statements.
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- ---------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/29/04
ASSETS
Investments, at value, including $214,054,287 of
securities on loan (identified cost, $1,197,300,704) $1,348,717,727
- ---------------------------------------------------------------------------------------------------
Cash 854
- ---------------------------------------------------------------------------------------------------
Foreign currency, at value (identified cost, $682,364) 682,504
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 36,574,315
- ---------------------------------------------------------------------------------------------------
Receivable for fund shares sold 5,652,504
- ---------------------------------------------------------------------------------------------------
Interest and dividends receivable 2,406,473
- ---------------------------------------------------------------------------------------------------
Other assets 5,074
- ---------------------------------------------------------------------------------------------------
Total assets $1,394,039,451
- ---------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $28,598,108
- ---------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 837,756
- ---------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 224,676,105
- ---------------------------------------------------------------------------------------------------
Payable to affiliates
- ---------------------------------------------------------------------------------------------------
Management fee 82,649
- ---------------------------------------------------------------------------------------------------
Reimbursement fee 36,995
- ---------------------------------------------------------------------------------------------------
Distribution and service fee 32,350
- ---------------------------------------------------------------------------------------------------
Program manager fee 10
- ---------------------------------------------------------------------------------------------------
Total liabilities $254,263,973
- ---------------------------------------------------------------------------------------------------
Net assets $1,139,775,478
- ---------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $1,009,197,822
- ---------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 151,422,459
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (19,199,790)
- ---------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (1,645,013)
- ---------------------------------------------------------------------------------------------------
Total $1,139,775,478
- ---------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 80,499,143
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $555,232,310
- ---------------------------------------------------------------------------------------------------
Shares outstanding 39,240,769
- ---------------------------------------------------------------------------------------------------
Net asset value per share $14.15
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$14.15) $15.01
- ---------------------------------------------------------------------------------------------------
Class B shares
Net assets $114,408,202
- ---------------------------------------------------------------------------------------------------
Shares outstanding 8,351,283
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $13.70
- ---------------------------------------------------------------------------------------------------
Class C shares
Net assets $71,059,154
- ---------------------------------------------------------------------------------------------------
Shares outstanding 5,196,571
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $13.67
- ---------------------------------------------------------------------------------------------------
Class I shares
Net assets $388,096,437
- ---------------------------------------------------------------------------------------------------
Shares outstanding 26,931,198
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $14.41
- ---------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $10,432,386
- ---------------------------------------------------------------------------------------------------
Shares outstanding 739,781
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $14.10
- ---------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $5,577
- ---------------------------------------------------------------------------------------------------
Shares outstanding 396
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $14.08
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class 529A shares
Net assets $240,540
- ---------------------------------------------------------------------------------------------------
Shares outstanding 17,066
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $14.09
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$14.09) $14.95
- ---------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $95,200
- ---------------------------------------------------------------------------------------------------
Shares outstanding 6,976.835
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $13.65
- ---------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $205,672
- ---------------------------------------------------------------------------------------------------
Shares outstanding 15,102
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $13.62
- ---------------------------------------------------------------------------------------------------
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 (unaudited)
- ---------------------------------------------------------------------------------------------------
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 SIX MONTHS ENDED 2/29/04
NET INVESTMENT INCOME (LOSS)
Income
- ---------------------------------------------------------------------------------------------------
Dividends $7,192,821
- ---------------------------------------------------------------------------------------------------
Interest 318,810
- ---------------------------------------------------------------------------------------------------
Foreign taxes withheld (799,007)
- ---------------------------------------------------------------------------------------------------
Total investment income $6,712,624
- ---------------------------------------------------------------------------------------------------
Expenses
- ---------------------------------------------------------------------------------------------------
Management fee $4,650,356
- ---------------------------------------------------------------------------------------------------
Trustees' compensation 17,984
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 876,247
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 868,405
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 505,301
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 294,554
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 18,280
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 8
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 314
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 333
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 755
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 224
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 83
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 189
- ---------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 4
- ---------------------------------------------------------------------------------------------------
Administrative fee 32,680
- ---------------------------------------------------------------------------------------------------
Custodian fee 765,543
- ---------------------------------------------------------------------------------------------------
Printing 70,823
- ---------------------------------------------------------------------------------------------------
Postage 49,285
- ---------------------------------------------------------------------------------------------------
Auditing fees 18,650
- ---------------------------------------------------------------------------------------------------
Legal fees 1,623
- ---------------------------------------------------------------------------------------------------
Miscellaneous 157,403
- ---------------------------------------------------------------------------------------------------
Total expenses $8,329,044
- ---------------------------------------------------------------------------------------------------
Fees paid indirectly (6,276)
- ---------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (49,511)
- ---------------------------------------------------------------------------------------------------
Net expenses $8,273,257
- ---------------------------------------------------------------------------------------------------
Net investment loss $(1,560,633)
- ---------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- ---------------------------------------------------------------------------------------------------
Investment transactions $93,446,159
- ---------------------------------------------------------------------------------------------------
Foreign currency transactions (258,051)
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $93,188,108
- ---------------------------------------------------------------------------------------------------
Change in unrealized appreciation
- ---------------------------------------------------------------------------------------------------
Investments $101,874,821
- ---------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 22,183
- ---------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $101,897,004
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $195,085,112
- ---------------------------------------------------------------------------------------------------
Increase in net assets from operations $193,524,479
- ---------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/29/04 8/31/03
(UNAUDITED)
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $(1,560,633) $1,824,579
- -------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions 93,188,108 7,945,831
- -------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign
currency translation 101,897,004 48,466,221
- ------------------------------------------------------- -------------- -------------
Increase in net assets from operations $193,524,479 $58,236,631
- ------------------------------------------------------- -------------- -------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -------------------------------------------------------------------------------------------------
Class A $(259,483) $--
- -------------------------------------------------------------------------------------------------
Class I (782,661) --
- -------------------------------------------------------------------------------------------------
Class R1 (13,715) --
- -------------------------------------------------------------------------------------------------
Class R2 (13) --
- -------------------------------------------------------------------------------------------------
Class 529A (122) --
- ------------------------------------------------------- -------------- -------------
Total distributions declared to shareholders $(1,055,994) $--
- ------------------------------------------------------- -------------- -------------
Net increase in net assets from fund share
transactions $188,001,490 $243,714,815
- ------------------------------------------------------- -------------- -------------
Redemption fees $2,420 $--
- ------------------------------------------------------- -------------- -------------
Total increase in net assets $380,472,395 $301,951,446
- ------------------------------------------------------- -------------- -------------
NET ASSETS
At beginning of period $759,303,083 $457,351,637
- -------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions
in excess of net investment income of $1,645,013 and
accumulated undistributed net investment income of
$971,614, respectively) $1,139,775,478 $759,303,083
- -------------------------------------------------------------------------------------------------
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 semiannual period and
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) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED --------------------------------------------------------------------------
CLASS A 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
year $11.53 $10.78 $12.25 $16.19 $12.47 $10.24
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment income
(loss)(S) $(0.02) $0.04 $(0.00)+++ $(0.00)+++ $0.30 $0.03
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.65 0.71 (1.47) (3.44) 3.78 2.36
- -------------------------------- ------- ------- ------- ------- ------- ------
Total from investment
operations $2.63 $0.75 $(1.47) $(3.44) $4.08 $2.39
- -------------------------------- ------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.01) $-- $-- $(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 declared to
shareholders $(0.01) $-- $-- $(0.50) $(0.36) $(0.16)
- -------------------------------- ------- ------- ------- ------- ------- ------
Redemption fees added to paid-
in capital# $0.00+++ $-- $-- $-- $-- $--
- -------------------------------- ------- ------- ------- ------- ------- ------
Net asset value, end of year $14.15 $11.53 $10.78 $12.25 $16.19 $12.47
- -------------------------------- ------- ------- ------- ------- ------- ------
Total return(%)(+) 22.78++ 6.96 (12.00) (21.76) 33.00 23.53
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED --------------------------------------------------------------------------
CLASS A (CONTINUED) 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.70+ 1.75 1.77 1.76 1.77 1.72
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.33)+ 0.36 (0.02) (0.02) 1.91 0.27
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 96 153 131 123 136
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $555,232 $387,732 $313,418 $240,231 $109,310 $16,839
- --------------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and expenses,
such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of average
daily net assets for Class A. To the extent that the expense reimbursement fee exceeds the fund's actual expenses, the excess
will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate on the earlier
of July 31, 2005 or such date as all expenses previously borne by MFS under the current agreement have been paid by the fund.
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) $(0.02) $0.03 $(0.01) $(0.01) $0.29 $(0.05)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.71+ 1.80 1.86 1.84 1.84 2.45
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.34)+ 0.31 (0.11) (0.10) 1.84 (0.46)
- --------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------
CLASS B 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of year $11.19 $10.54 $12.04 $15.98 $12.37 $10.21
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment income (loss)(S) $(0.06) $(0.03) $(0.08) $(0.10) $0.18 $(0.04)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.57 0.68 (1.42) (3.39) 3.77 2.35
- ------------------------------------ ------- ------- ------- ------- ------- -----
Total from investment
operations $2.51 $0.65 $(1.50) $(3.49) $3.95 $2.31
- ------------------------------------ ------- ------- ------- ------- ------- -----
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 declared to
shareholders $-- $-- $-- $(0.45) $(0.34) $(0.15)
- ------------------------------------ ------- ------- ------- ------- ------- -----
Net asset value, end of year $13.70 $11.19 $10.54 $12.04 $15.98 $12.37
- ------------------------------------ ------- ------- ------- ------- ------- -----
Total return (%) 22.43++ 6.17 (12.46) (22.27) 32.14 22.84
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------
CLASS B (CONTINUED) 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 2.35+ 2.40 2.42 2.41 2.42 2.37
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.95)+ (0.32) (0.69) (0.71) 1.19 (0.36)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 96 153 131 123 136
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $114,408 $88,177 $82,659 $82,135 $60,559 $10,683
- -------------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and expenses,
such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of average
daily net assets for Class B. To the extent that the expense reimbursement fee exceeds the fund's actual expenses, the excess
will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate on the earlier
of July 31, 2005 or such date as all expenses previously borne by MFS under the current agreement have been paid by the fund.
To the extent actual expenses were over this limitation, the net investment income (loss) per share and the ratios would have
been:
Net investment income (loss) $(0.06) $(0.04) $(0.09) $(0.11) $0.17 $(0.12)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.36+ 2.45 2.51 2.49 2.49 3.10
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.96)+ (0.37) (0.78) (0.79) 1.12 (1.09)
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------
CLASS C 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of year $11.17 $10.52 $12.02 $15.97 $12.36 $10.21
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment income (loss)(S) $(0.06) $(0.03) $(0.08) $(0.09) $0.19 $(0.04)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency 2.56 0.68 (1.42) (3.40) 3.76 2.34
- ------------------------------------ ------ ------ ------ ------ ------ ------
Total from investment
operations $2.50 $0.65 $(1.50) $(3.49) $3.95 $2.30
- ------------------------------------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 declared to
shareholders $-- $-- $-- $(0.46) $(0.34) $(0.15)
- ------------------------------------ ------ ------ ------ ------ ------ ------
Redemption fees added to paid-in
capital $0.00+++ $-- $-- $-- $-- $--
- ------------------------------------ ------ ------ ------ ------ ------ ------
Net asset value, end of year $13.67 $11.17 $10.52 $12.02 $15.97 $12.36
- ------------------------------------ ------ ------ ------ ------ ------ ------
Total return (%) 22.38++ 6.18 (12.48) (22.27) 32.17 22.74
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------
CLASS C (CONTINUED) 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 2.35+ 2.40 2.42 2.41 2.42 2.37
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.96)+ (0.32) (0.09) (0.10) 1.28 (0.33)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 96 153 131 123 136
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $71,059 $46,022 $43,046 $47,375 $31,126 $3,802
- ------------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and expenses,
such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of average
daily net assets for Class C. To the extent that the expense reimbursement fee exceeds the fund's actual expenses, the excess
will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate on the earlier
of July 31, 2005 or such date as all expenses previously borne by MFS under the current agreement have been paid by the fund.
To the extent actual expenses were over this limitation, the net investment income (loss) per share and the ratios would have
been:
Net investment income (loss) $(0.06) $(0.04) $(0.09) $(0.10) $0.18 $(0.12)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.36+ 2.45 2.51 2.49 2.49 3.10
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.97)+ (0.37) (0.79) (0.78) 1.21 (1.06)
- ------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------
CLASS I 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of year $11.75 $10.95 $12.39 $16.33 $12.55 $10.26
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.00+++ $0.10 $0.04 $0.03 $0.26 $0.05
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.69 0.70 (1.48) (3.46) 3.90 2.42
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $2.69 $0.80 $(1.44) $(3.43) $4.16 $2.47
- ------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.03) $-- $-- $(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 declared to
shareholders $(0.03) $-- $-- $(0.51) $(0.38) $(0.18)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of year $14.41 $11.75 $10.95 $12.39 $16.33 $12.55
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 22.95++ 7.31 (11.62) (21.49) 33.61 24.08
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED --------------------------------------------------------------------
CLASS I (CONTINUED) 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.36+ 1.40 1.42 1.41 1.42 1.37
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.04+ 0.95 0.38 0.25 1.66 0.47
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 96 153 131 123 136
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $388,096 $232,328 $18,207 $10,150 $10,398 $1,047
- ------------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are
defined as the fund's operating expenses, exclusive of management, and certain other fees and expenses, such that Other
Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses
during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of average
daily net assets for Class I. To the extent that the expense reimbursement fee exceeds the fund's actual expenses, the
excess will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate on
the earlier of July 31, 2005 or such date as all expenses previously borne by MFS under the current agreement have been
paid by the fund. 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) $0.00+++ $0.10 $0.03 $0.02 $0.25 $(0.03)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.37+ 1.45 1.51 1.49 1.49 2.10
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.03+ 0.90 0.29 0.17 1.59 (0.26)
- ------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS PERIOD
ENDED ENDED
CLASS R1 2/29/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $11.52 $10.38
- ----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.03) $(0.01)
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 2.63 1.15
- -------------------------------------------------------------------- ------- ------
Total from investment operations $2.60 $1.14
- -------------------------------------------------------------------- ------- ------
Less distributions declared to shareholders from net investment
income $(0.02) $--
- -------------------------------------------------------------------- ------- ------
Net asset value, end of period $14.10 $11.52
- -------------------------------------------------------------------- ------- ------
Total return (%) 22.63++ 10.98++
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.85+ 1.90+
- ----------------------------------------------------------------------------------------------------------
Net investment loss (0.47)+ (0.09)+
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover 51 96
- ----------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $10,432 $4,810
- ----------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other
Expenses", which are defined as the fund's operating expenses, exclusive of management, distribution
and service, and certain other fees and expenses, such that Other Expenses do not exceed 0.40%
annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses during the
fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of
average daily net assets for Class R1. To the extent that the expense reimbursement fee exceeds the
fund's actual expenses, the excess will be applied to unreimbursed amounts paid by MFS under the
current agreement. This agreement will terminate on the earlier of July 31, 2005 or such date as all
expenses previously borne by MFS under the current agreement have been paid by the fund. To the extent
actual expenses were over this limitation, the net investment loss per share and the ratios would have
been:
Net investment loss $(0.03) $(0.01)
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.86+ 1.95+
- ----------------------------------------------------------------------------------------------------------
Net investment loss (0.48)+ (0.14)+
- ----------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 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
PERIOD ENDED
2/29/04*
CLASS R2 (UNAUDITED)
Net asset value, beginning of period $12.56
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.03)
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency transactions 1.58
- ----------------------------------------------------------------------------
Total from investment operations $1.55
- ----------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.03)
- ----------------------------------------------------------------------------
Net asset value, end of period $14.08
- ----------------------------------------------------------------------------
Total return (%) 12.39++
- -------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.10+
- -------------------------------------------------------------------------------
Net investment loss (0.74)+
- -------------------------------------------------------------------------------
Portfolio turnover 51
- -------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $6
- -------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion
of the fund's "Other Expenses", which are defined as the fund's operating
expenses, exclusive of management, distribution and service, and certain
other fees and expenses, such that Other Expenses do not exceed 0.65%
annually. This arrangement is effected by MFS bearing all of the fund's
Other Expenses during the fund's fiscal year and the fund paying MFS an
expense reimbursement fee not greater than 0.65% of average daily net
assets for Class R2. To the extent that the expense reimbursement fee
exceeds the fund's actual expenses, the excess will be applied to
unreimbursed amounts paid by MFS under the current agreement. This
agreement will terminate on the earlier of July 31, 2005 or such date as
all expenses previously borne by MFS under the current agreement have been
paid by the fund. To the extent actual expenses were over this limitation,
the net investment loss per share and the ratios would have been:
Net investment loss $(0.03)
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.11+
- -------------------------------------------------------------------------------
Net investment loss (0.75)+
- -------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through February 29, 2004.
+ 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
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
2/29/04 8/31/03 8/31/02*
CLASS 529A (UNAUDITED)
Net asset value, beginning of period $11.50 $10.78 $10.66
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.04) $0.03 $(0.00)+++
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 2.64 0.69 0.12
- --------------------------------------------------------- ------- ------ ------
Total from investment operations $2.60 $0.72 $0.12
- --------------------------------------------------------- ------- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.01) $-- $--
- --------------------------------------------------------- ------- ------ ------
Net asset value, end of period $14.09 $11.50 $10.78
- --------------------------------------------------------- ------- ------ ------
Total return (%)(+) 22.60++ 6.68 1.13++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.95+ 2.00 2.02+
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.56)+ 0.30 (0.20)+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 96 153
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year (000 Omitted) $241 $112 $11
- --------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which
are defined as the fund's operating expenses, exclusive of management, distribution and service, and certain
other fees and expenses, such that Other Expenses do not exceed 0.65% annually. This arrangement is effected by
MFS bearing all of the fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense
reimbursement fee not greater than 0.65% of average daily net assets for Class 529A. To the extent that the
expense reimbursement fee exceeds the fund's actual expenses, the excess will be applied to unreimbursed
amounts paid by MFS under the current agreement. This agreement will terminate on the earlier of July 31, 2005
or such date as all expenses previously borne by MFS under the current agreement have been paid by the fund. 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) $0.03 $(0.00)+++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.96+ 2.05 2.11+
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.57)+ 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 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.
Financial Highlights - continued
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
2/29/04 8/31/03 8/31/02*
CLASS 529B (UNAUDITED)
Net asset value, beginning of period $11.17 $10.54 $10.42
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.08) $(0.05) $(0.00)+++
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 2.56 0.68 0.12
- ------------------------------------------------------- ------- ------ ------
Total from investment operations $2.48 $0.63 $0.12
- ------------------------------------------------------- ------- ------ ------
Net asset value, end of period $13.65 $11.17 $10.54
- ------------------------------------------------------- ------- ------ ------
Total return (%) 22.11++ 5.98 1.15++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 2.60+ 2.65 2.67+
- --------------------------------------------------------------------------------------------------------------------
Net investment loss (1.24)+ (0.43) (0.45)+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 96 153
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year (000 Omitted) $95 $41 $5
- --------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which
are defined as the fund's operating expenses, exclusive of management, distribution and service, and certain
other fees and expenses, such that Other Expenses do not exceed 0.65% annually. This arrangement is effected by
MFS bearing all of the fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense
reimbursement fee not greater than 0.65% of average daily net assets for Class 529B. To the extent that the
expense reimbursement fee exceeds the fund's actual expenses, the excess will be applied to unreimbursed
amounts paid by MFS under the current agreement. This agreement will terminate on the earlier of July 31, 2005
or such date as all expenses previously borne by MFS under the current agreement have been paid by the fund. To
the extent actual expenses were over this limitation, the net investment loss per share and the ratios would
have been:
Net investment loss $(0.08) $(0.05) $(0.00)+++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.61+ 2.70 2.76+
- --------------------------------------------------------------------------------------------------------------------
Net investment loss (1.25)+ (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
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
2/29/04 8/31/03 8/31/02*
CLASS 529C (UNAUDITED)
Net asset value, beginning of period $11.14 $10.52 $10.40
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.08) $(0.04) $(0.00)+++
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 2.56 0.66 0.12
- --------------------------------------------------------- ------- ------ ------
Total from investment operations $2.48 $0.62 $0.12
- --------------------------------------------------------- ------- ------ ------
Net asset value, end of period $13.62 $11.14 $10.52
- --------------------------------------------------------- ------- ------ ------
Total return (%) 22.26++ 5.89 1.15++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 2.60+ 2.65 2.67+
- --------------------------------------------------------------------------------------------------------------------
Net investment loss (1.24)+ (0.36) (0.45)+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 96 153
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year (000 Omitted) $206 $81 $5
- --------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which
are defined as the fund's operating expenses, exclusive of management, distribution and service, and certain
other fees and expenses, such that Other Expenses do not exceed 0.65% annually. This arrangement is effected by
MFS bearing all of the fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense
reimbursement fee not greater than 0.65% of average daily net assets for Class 529C. To the extent that the
expense reimbursement fee exceeds the fund's actual expenses, the excess will be applied to unreimbursed
amounts paid by MFS under the current agreement. This agreement will terminate on the earlier of July 31, 2005
or such date as all expenses previously borne by MFS under the current agreement have been paid by the fund. To
the extent actual expenses were over this limitation, the net investment loss per share and the ratios would
have been:
Net investment loss $(0.08) $(0.04) $(0.00)+++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.61+ 2.70 2.76+
- --------------------------------------------------------------------------------------------------------------------
Net investment loss (1.25)+ (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 (unaudited)
- -------------------------------------------------------------------------------
(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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market prices where current market
prices are readily available, or the fund may fair value portfolio securities
under the direction of the Board of Trustees when a determination is made that
current market prices are not readily available. Equity securities in the
fund's portfolio for which market quotations are available are valued at the
last sale or official closing price as reported by an independent pricing
service 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. Equity securities traded over the counter are valued at the
last sales price traded each day as reported by an independent pricing
service, or to the extent there are no sales reported, such securities are
valued on the basis of quotations obtained from brokers and dealers. Equity
securities for which it is determined that current market prices are not
readily available will be fair valued under the direction of the Board of
Trustees. The fund may also fair value foreign equity securities in cases
where closing market prices are not readily available or are deemed not
reflective of readily available market prices. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the fund calculates its net
asset value (generally, the close of the New York Stock Exchange) that may
impact the value of securities traded in these foreign markets. In these
cases, the fund may utilize information from an external vendor or other
sources to adjust closing market prices of foreign equity securities to
reflect what it believes to be the fair value of the securities as of the
fund's valuation time. Because the frequency of significant events is not
predictable, fair valuation of foreign equity securities may occur on a
frequent basis. Short-term obligations with a remaining maturity in excess of
60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the fund's portfolio are valued at amortized cost, which
constitutes market value as determined by the Board of Trustees. 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.
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 - 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.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or 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.
SHORT TERM FEES - The fund charges a 2% redemption fee (which is retained by
the fund) on proceeds from shares redeemed or exchanged within 30 days
following the acquisition (either by purchase or exchange) of certain fund
shares made on or after December 8, 2003. These fees are accounted for as an
addition to paid-in-capital.
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 accounting principles generally accepted in the United States
of America. 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 six months ended February 29, 2004, the fund's custodian
fees were reduced by $3,488 under this arrangement. The fund has entered into
a commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For six months ended February 29, 2004, the fund's miscellaneous
expenses were reduced by $2,788 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 capital losses.
The fund paid no distributions for the years ended August 31, 2002 and August
31, 2003.
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
- -------------------------------------------------------------------------
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. 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.
Effective January 1, 2004, the management fee is computed daily and paid
monthly at the following annual rates:
First $1.0 billion of average net assets 0.90%
----------------------------------------------------------
Next $1.0 billion of average net assets 0.80%
----------------------------------------------------------
Average net assets in excess of $2.0 billion 0.70%
----------------------------------------------------------
Prior to January 1, 2004, the management fee was computed daily and paid
monthly at an annual rate of 1.00% of the fund's average daily net assets.
Management fees incurred for the six months ended February 29, 2004 were 0.96%
of average daily net assets on an annualized basis.
MFS has contractually agreed, subject to reimbursement, to bear a portion of
the fund's "Other Expenses", which are defined as the fund's operating
expenses, exclusive of management, distribution and service, and certain other
fees and expenses, such that Other Expenses do not exceed 0.40% annually. This
arrangement is effected by MFS bearing all of the fund's Other Expenses during
the fund's fiscal year and the fund paying 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 R1 and not greater than 0.65% of average daily net
assets for Class 529A, Class 529B, Class 529C, and Class R2. To the extent
that the expense reimbursement fee exceeds the fund's actual expenses, the
excess will be applied to unreimbursed amounts paid by MFS under the currrent
agreement. This agreement will terminate on the earlier of July 31, 2005 or
such date as all expenses previously borne by MFS under the current agreement
have been paid by the fund. At February 29, 2004, aggregate unreimbursed
expenses amounted to $1,272,138.
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 retired Trustees and an
unfunded retirement benefit deferral plan for current Trustees. Included in
Trustees" compensation is a net increase of $11,281 as a result of the change
in the fund's pension liability for current Trustees and a pension expense of
$309 for retired Trustees for the six months ended February 29, 2004.
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
up to the following annual percentage rates 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%
----------------------------------------------------------
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of class R2 shares to MFS
for the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$45,505 and $310 for the six months ended February 29, 2004, 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 R1, Class R2, 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- ----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.25% 0.75% 0.75%
- ----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.50% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the six months ended
February 29, 2004 amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained
by MFD $7,456 $291 $150 $-- $--
- ----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained
by MFD $49 $6 $24
- ----------------------------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February
29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual
Percentage Rates 0.35% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Effective Annual
Percentage Rates 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 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 six months ended February 29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred
Sales Charges Imposed $3,661 $100,409 $2,675 $-- $--
- --------------------------------------------------------------------------------
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 - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, 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%, which amounted to
$532,013 for the six months ended February 29, 2004. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $88,902 for the six months ended February 29, 2004, as well as
other expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$632,581,410 and $481,084,569, 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 $1,201,710,538
----------------------------------------------------------
Gross unrealized appreciation $157,892,169
----------------------------------------------------------
Gross unrealized depreciation (10,884,980)
----------------------------------------------------------
Net unrealized appreciation $147,007,189
----------------------------------------------------------
(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:
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 17,600,799 $229,082,210 30,271,752 $316,573,119
- ---------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 12,694 167,084 -- --
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (12,001,378) (161,639,340) (25,705,916) (269,487,051)
- ---------------------------------------------------------------------------------------------------------
Net increase 5,612,115 $67,609,954 4,565,836 $47,086,068
- ---------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,372,968 $17,574,747 2,249,013 $22,954,752
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (899,168) (11,397,205) (2,215,900) (22,457,073)
- ---------------------------------------------------------------------------------------------------------
Net increase 473,800 $6,177,542 33,113 $497,679
- ---------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,602,130 $20,278,737 1,582,387 $16,129,234
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (524,437) (6,749,630) (1,556,144) (15,741,059)
- ---------------------------------------------------------------------------------------------------------
Net increase 1,077,693 $13,529,107 26,243 $388,175
- ---------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 8,514,452 $113,861,879 19,092,539 $201,423,230
- ---------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 57,562 771,329 -- --
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (1,420,204) (18,460,940) (976,393) (10,403,126)
- ---------------------------------------------------------------------------------------------------------
Net increase 7,151,810 $96,172,268 18,116,146 $191,020,104
- ---------------------------------------------------------------------------------------------------------
Six months ended Period ended
2/29/04 8/31/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 599,907 $7,928,709 741,611 $8,002,008
- ---------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1,035 13,607 -- --
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (278,696) (3,668,853) (324,076) (3,470,746)
- ---------------------------------------------------------------------------------------------------------
Net increase 322,246 $4,273,463 417,535 $4,531,262
- ---------------------------------------------------------------------------------------------------------
Period ended
2/29/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 396 $5,018
- ----------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions --+ 13
- ----------------------------------------------------------------------
Net increase 396 $5,031
- ----------------------------------------------------------------------
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 7,540 $98,128 9,258 $96,624
- ---------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 10 123 -- --
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (275) (3,848) (501) (5,665)
- ---------------------------------------------------------------------------------------------------------
Net increase 7,275 $94,403 8,757 $90,959
- ---------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 3,473 $44,282 3,318 $34,075
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (169) (1,970) (151) (1,630)
- ---------------------------------------------------------------------------------------------------------
Net increase 3,304 $42,312 3,167 $32,445
- ---------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 7,866 $97,468 6,762 $68,334
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (5) (58) (21) (211)
- ---------------------------------------------------------------------------------------------------------
Net increase 7,861 $97,410 6,741 $68,123
- ---------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
** For the period from the inception of Class R2 shares, October 31, 2003, through February 29, 2004.
+ Share amount was less than 1.
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the six months ended February 29, 2004, was $3,045.
The fund had no borrowings during the period.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding regarding
disclosure of brokerage allocation practices in connection with fund sales.
Under the terms of the settlement, in which MFS neither admitted nor denied
any wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement and $50
million in penalty to certain MFS funds, pursuant to a plan to be approved by
an independent distribution consultant. The agreement with the SEC is
reflected in an order of the SEC. The settlement order states that MFS failed
to adequately disclose to the Boards of Trustees and to shareholders of the
MFS funds the specifics of its preferred arrangements with certain brokerage
firms selling MFS fund shares. The settlement order states that MFS had in
place policies designed to obtain best execution of all fund trades.
As part of the settlement, MFS also agreed to retain an independent compliance
consultant to review the completeness of its disclosure to fund trustees and
to fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial advisers who support the sale of fund
shares. The brokerage allocation practices which were the subject of this
proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the Securities and
Exchange Commission ("SEC"), the New York Attorney General ("NYAG") and the
Bureau of Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in certain
MFS fund prospectuses regarding market timing and related matters (the
"February Settlements"). These regulators alleged that prospectus language for
certain MFS funds was false and misleading because, although the prospectuses
for those funds in the regulators' view indicated that the funds prohibited
market timing, MFS did not limit trading activity in 11 domestic large cap
stock, high grade bond and money market funds. MFS' former Chief Executive
Officer, John W. Ballen, and former President, Kevin R. Parke, have also
reached agreement with the SEC (Messrs. Ballen and Parke resigned their
director and officer positions with MFS on February 13, 2004). Under the terms
of the February Settlements, MFS and the executives neither admit nor deny
wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Boards of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with the
NYAG to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH will retain $250,000 and $750,000 will be contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, MFS and the Retail Funds will adopt certain governance changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as
trustees of all MFS funds, and Mr. Ballen resigned his position as President
of all MFS funds, effective February 6, 2004. Messrs. Ballen and Parke will
not be returning to MFS or the MFS funds after their suspensions.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The
lawsuits variously have been commenced as class actions or individual actions
on behalf of investors who purchased, held or redeemed shares of the funds
during specified periods, as class actions on behalf of participants in
certain retirement plan accounts, or as derivative actions on behalf of the
MFS funds. The lawsuits generally allege that some or all of the defendants
(i) permitted or acquiesced in market timing and/or late trading in some of
the MFS funds, inadequately disclosed MFS' internal policies concerning market
timing and such matters, and received excessive compensation as fiduciaries to
the MFS fund, or (ii) permitted or acquiesced in the improper use of fund
assets by MFS to support the distribution of fund shares and inadequately
disclosed MFS' use of fund assets in this manner. The actions assert that some
or all of the defendants violated the federal securities laws, including the
Securities Act of 1933 and the Securities Exchange Act of 1934, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, the Employee
Retirement Income Security Act of 1974, as well as fiduciary duties and other
violations of common law. The lawsuits seek unspecified compensatory damages.
Insofar as any of the actions is appropriately brought derivatively on behalf
of any of the MFS funds, any recovery will inure to the benefit of the funds.
The defendants are reviewing the allegations of the multiple complaints and
will respond appropriately. Additional lawsuits based on similar allegations
may be filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS
has established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the
funds, and will pay $50 million to compensate certain MFS funds based upon the
amount of brokerage commissions allocated in recognition of fund sales. It is
not clear whether these amounts will be sufficient to compensate shareholders
for all of the damage they allegedly sustained, whether certain shareholders
or putative class members may have additional claims to compensation, or
whether the damages that may be awarded in any of the actions will exceed
these amounts. In the event the MFS funds incur any losses, costs or expenses
in connection with such lawsuits, the Boards of Trustees of the affected funds
may pursue claims on behalf of such funds against any party that may have
liability to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- --------------------------------------------------------------------------------------------------------------
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
JOHN W. BALLEN(2)(5) (born 09/12/59) DAVID H. GUNNING(4) (born 05/30/42)
Trustee and President Trustee
Massachusetts Financial Services Company, Chief Cleveland-Cliffs Inc. (mining products and service
Executive Officer and Director (until February provider), Vice Chairman/Director (since April
2004) 2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
ROBERT J. MANNING(2)(7) (born 10/20/63) Electric Holdings, Inc. (welding equipment
Trustee manufacturer), Director; Southwest Gas Corporation
Massachusetts Financial Services Company, Chief (natural gas distribution company), Director
Executive Officer, President, Chief Investment
Officer and Director WILLIAM R. GUTOW (born 09/27/41)
Trustee
KEVIN R. PARKE(2)(5) (born 12/14/59) Private investor and real estate consultant;
Trustee Capitol Entertainment Management Company (video
Massachusetts Financial Services Company, franchise), Vice Chairman
President, Chief Investment Officer and Director
(until February 2004) AMY B. LANE(4) (born 02/08/53)
Trustee
ROBERT C. POZEN(2)(7) (born 08/08/46) Retired; Merrill Lynch & Co., Inc., Managing
Trustee Director, Investment Banking Group (1997 to
Massachusetts Financial Services Company, Chairman February 2001); Borders Group, Inc. (book and
(since February 2004); Harvard Law School music retailer), Director; Federal Realty
(education), John Olin Visiting Professor (since Investment Trust (real estate investment trust),
July 2002); Secretary of Economic Affairs, The Trustee
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice ABBY M. O'NEILL(3) (born 04/27/28)
Chairman (June 2000 to December 2001); Fidelity Trustee
Management & Research Company (investment Private investor; Rockefeller Financial Services,
adviser), President (March 1997 to July 2001); The Inc. (investment advisers), Chairman and Chief
Bank of New York (financial services), Director; Executive Officer
Bell Canada Enterprises (telecommunications),
Director; Telesat (satellite communications), LAWRENCE T. PERERA (born 06/23/35)
Director Trustee
Hemenway & Barnes (attorneys), Partner
JEFFREY L. SHAMES(2)(6) (born 06/02/55)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Chairman Trustee
(until February 2004) Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
J. ATWOOD IVES (born 05/01/36) CBL & Associates Properties, Inc. (real estate
Co-Chair investment trust), Director
Private investor; KeySpan Corporation (energy
related services), Director; Eastern Enterprises J. DALE SHERRATT (born 09/23/38)
(diversified services company), Chairman, Trustee Trustee
and Chief Executive Officer (until November 2000) Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WARD SMITH (born 09/13/30) (investor in health care companies), Managing
Co-Chair General Partner (since 1993); Cambridge
Private investor Nutraceuticals (professional nutritional
products), Chief Executive Officer (until May
LAWRENCE H. COHN, M.D. (born 03/11/37) 2001)
Trustee
Brigham and Women's Hospital, Chief of Cardiac ELAINE R. SMITH (born 04/25/46)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Independent health care industry consultant
(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.
(3) Retired December 31, 2003.
(4) Appointed Trustee on January 27, 2004.
(5) Resigned February 6, 2004.
(6) Resigned on February 13, 2004.
(7) Appointed Trustee on February 24, 2004.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN(1) (born 09/12/59) RICHARD M. HISEY (born 08/29/58)
Trustee and President Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Senior
Executive Officer and Director (until February Vice President (since July 2002); The Bank of New
2004) York, Senior Vice President (September 2000 to
July 2002); Lexington Global Asset Managers, Inc.,
JAMES R. BORDEWICK, JR. (born 03/06/59) Executive Vice President and Chief Financial
Assistant Secretary and Assistant Clerk Officer (prior to September 2000); Lexington
Massachusetts Financial Services Company, Senior Funds, Treasurer (prior to September 2000)
Vice President and Associate General Counsel
ROBERT J. MANNING(2) (born 10/20/63)
STEPHEN E. CAVAN (born 11/06/53) President
Secretary and Clerk Massachusetts Financial Services Company, Chief
Massachusetts Financial Services Company, Senior Executive Officer, President, Chief Investment
Vice President, General Counsel and Secretary Officer and Director
STEPHANIE A. DESISTO (born 10/01/53) ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers President
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus JAMES O. YOST (born 06/12/60)
Investment Management, Senior Vice President Assistant Treasurer
(prior to November 2002) Massachusetts Financial Services Company, Senior
Vice President
ROBERT R. FLAHERTY (born 09/18/63)
Assistant Treasurer
Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
(1) Resigned on February 6, 2004.
(2) Appointed President on February 6, 2004.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five
years thereafter to elect Trustees. Each Trustee and officer will hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Mr. Shames has served as a Trustee of the Trust continually since originally appointed until February 13,
2004. Messrs. Cohn, Sherratt and Smith, have served in their capacity as Trustee of the Trust continuously
since originally elected or appointed. Messrs. 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. Ballen was elected by
shareholders and served as a Trustee of the Trust from January 1, 2002 until February 6, 2004, and Mr. Parke
served as a Trustee of the Trust from January 1, 2002, until February 6, 2004. Ms. O'Neill retired on December
31, 2003. Mr. Gunning and Ms. Lane have served as Trustees of the Trust since January 27, 2004, and Messrs.
Manning and Pozen have served as Trustees since February 24, 2004.
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 109 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 Bank
MFS Fund Distributors, Inc. One Chase Manhattan Plaza
500 Boylston Street, Boston, MA New York, NY 10081
02116-3741
DIRECTOR OF GLOBAL EQUITY RESEARCH
David A. Antonelli
- ------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. The prospectus contains complete information on the fund's
investment objective(s), the risks associated with an investment in the fund,
the fees, charges and expenses involved, as well as other information about
the fund. The prospectus should be read carefully before investing.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
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CONTACT INFORMATION
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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 and procedures 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
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General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
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Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
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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
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WORLD WIDE WEB
Go to 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
RIF-SEM-4/04 111M
MFS(R) Mutual Funds
SEMIANNUAL REPORT 2/29/04
MFS(R) CORE GROWTH FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
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MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
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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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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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MFS(R) CORE GROWTH FUND
The fund seeks capital appreciation.
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To view MFS' statement concerning regulatory issues affecting the mutual fund
industry and the firm, please visit mfs.com.
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TABLE OF CONTENTS
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MFS PRIVACY POLICY
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LETTER FROM THE CEO 1
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MFS ORIGINAL RESEARCH(R) 4
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MANAGEMENT REVIEW 5
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PERFORMANCE SUMMARY 9
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PORTFOLIO OF INVESTMENTS 12
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FINANCIAL STATEMENTS 19
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NOTES TO FINANCIAL STATEMENTS 31
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TRUSTEES AND OFFICERS 41
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MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 43
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CONTACT INFORMATION 44
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ASSET ALLOCATION 45
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LETTER FROM THE CEO
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Dear Shareholders,
[Photo of Robert J. Manning]
As the firm's new Chief Executive Officer, I want to thank you for your
continued trust in MFS and tell you about the series of actions we have taken
since our recent settlements with the regulators. These actions are designed
to enhance the governance structure of the MFS funds, tighten our business
practices, and strengthen the management team at MFS.
In early February, Robert Pozen joined MFS as non-executive Chairman. A
seasoned veteran of the mutual fund industry, Bob has held prior positions as
President of Fidelity Management & Research Company, as Associate General
Counsel of the Securities and Exchange Commission, and as a visiting professor
at Harvard Law School.
In an effort to develop and implement policies that we believe will set a new
standard in regulatory compliance, MFS has hired two new senior executives.
Jeffrey Carp is joining us as General Counsel with responsibility for all of
our legal affairs. Previously he was a senior partner with the law firm of
Hale and Dorr LLP. Also joining MFS in the new position of Executive Vice
President of Regulatory Affairs is Maria Dwyer, who returned to the firm after
serving as a senior executive at Fidelity. At MFS, Maria is in charge of
compliance, internal audit, and fund treasury.
In the area of governance, we have taken steps to enhance the independence of
our funds' boards of trustees to better protect the interests of shareholders.
We have independent board chairs and at least 75% of the trustees are
independent. The trustees will appoint not only their own counsel but also an
independent compliance officer. This officer will assist the boards and their
committees in monitoring the MFS funds' compliance with federal and
state regulations.
In February, MFS reached agreements with federal and state regulators to
settle their administrative proceedings against the firm and two senior
executives in connection with market timing and related issues. Under the
terms of the settlements, we agreed to pay $225 million to compensate affected
retail fund shareholders. The $225 million will be distributed in accordance
with a distribution plan developed by an independent consultant.
We have further agreed with state regulators to reduce management fees on
certain funds we advise by approximately $25 million annually over the next
five years and to pay an administrative fine of $1 million, which will be used
for the purpose of investor education. We have introduced a set of policies
designed to protect the MFS funds and MFS fund shareholders from market timing
abuses. By July, all MFS retail funds, except money market funds, will have a
2% redemption fee on short-term trades. Our global, international, high-yield,
mid- and small-cap funds will impose the 2% fee on redemptions or exchanges of
fund shares made within 30 calendar days of a share purchase. For all other
MFS funds, except money market funds, the 2% fee will be imposed on
redemptions or exchanges made within 5 business days of a share purchase. See
the fund prospectus for more information.
We continue to use fair value pricing, a strategy that minimizes the potential
for investors to take advantage of "stale" prices. These can occur, as one
example, when funds own foreign securities whose prices close on overseas
exchanges in different time zones. At the same time, we enhanced our
monitoring of excessive trading. We did so by increasing our staff and
updating our computer systems to improve our ability to detect excessive
trading in our funds. Finally, we are supporting industry efforts to establish
a "hard" 4 p.m. close on all trading, which would prevent the possibility of
late trading.
In March, MFS reached a second settlement with the SEC under an administrative
proceeding resolving the SEC's investigation into how we disclosed brokerage
allocation practices in connection with fund sales. According to the
settlement order, we did not effectively disclose the potential conflict of
interest that may arise from these arrangements.
Under the terms of the settlement, MFS has agreed to pay one dollar in
disgorgement and $50 million in penalty to MFS fund shareholders. The
settlement noted that MFS had policies in place designed to obtain best
execution of all trades of securities within MFS portfolios.
This past November, MFS eliminated the above mentioned practice of directing
brokerage commissions to certain firms in recognition of fund sales.
Additionally, we announced in March that we would ban the use of soft dollars
to acquire third-party securities research and market data. Soft dollars are
permitted under federal securities laws. In fact, it is a common industry
practice to use a portion of the brokerage commissions to pay for certain
research and execution products and services that are provided to asset
managers. MFS will now pay cash out of its own pocket for third-party research
and market data.
MFS continues to be financially strong, with more than U.S. $140 billion (as
of 12/31/03) in assets under management, which continued to be stable during
the first quarter of 2004. We also have the full support of our parent
company, Sun Life Financial, an internationally diversified financial services
firm that manages more than U.S. $269 billion (as of 12/31/03).
We chose to settle these two proceedings with the SEC so we could concentrate
on serving our fund shareholders. As Chief Investment Officer, my focus is on
ensuring that our portfolio teams work closely together and take full
advantage of all the resources available to them to deliver the best possible
investment performance.
As the inventor of the open-end mutual fund in America in 1924, MFS has a
strong tradition and culture of innovation. By strengthening our business and
governance practices, we believe we have an unprecedented opportunity to set a
new standard in the mutual fund industry.
As I look ahead, I do so with confidence. The collaboration among MFS
employees, many of whom have worked at the firm for their entire careers,
continues as we remain singularly dedicated to our clients. It has been our
sincere privilege to serve you, and we thank you for the confidence that you
have shown in MFS.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer
MFS Investment Management(R)
March 15, 2004
Note to Shareholders: On February 6, 2004, Jeffrey L. Shames retired as
Chairman of MFS. Robert Pozen was named as non-executive Chairman. Also,
on February 6, 2004, Robert J. Manning was appointed Chief Executive Officer,
President, and Chief Investment Officer.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
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MFS ORIGINAL RESEARCH(R)
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THE MFS(R) DIFFERENCE
For 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
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MANAGEMENT REVIEW
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MARKET ENVIRONMENT
The turnaround in global stock markets that began in the spring of 2003
continued for most of the six-month period ended February 29, 2004. The
release of increasingly positive economic numbers as the period progressed,
particularly with regard to corporate earnings and GDP (gross domestic
product) growth, helped drive the equity rally. By late 2003, corporate
capital spending, which had been weak for some time, had also begun to
accelerate. Another driver of the equity rally, in our view, was the U.S.
Federal Reserve Board's decision to leave interest rates at a four-decade low
throughout the period. While energy prices rose late in the period, core
inflation - excluding volatile food and energy prices - remained very low
relative to historical averages.
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TOP 5 SECTOR WEIGHTINGS
AS OF 2/29/04
TECHNOLOGY 25.5%
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HEALTH CARE 24.7%
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FINANCIAL SERVICES 9.9%
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RETAILING 9.2%
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LEISURE 8.6%
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The portfolio is actively managed, and current
weightings may be different.
DETRACTORS FROM PERFORMANCE
While fund performance was positive for the six-month period ended February
29, 2004, we did not fully participate in the market's gains; the portfolio
underperformed its benchmark, the Russell 1000 Growth Index, and the average
large-cap growth fund as reported by Lipper Inc.
Relative to our benchmark, transportation was the fund's weakest area over the
period. Stock selection as well as an overweighting in the sector hurt results
as transportation stocks generally underperformed the broad market. Our key
detractors in the sector were a pair of low-cost airlines: Southwest Airlines
in the United States and Ryanair in Europe. Issues weighing on Southwest and
on the airline group in general included higher fuel prices, soft revenues,
and broad security concerns. Ryanair stock declined sharply in late January
2004 when the company warned investors that its low fares could lead to
smaller profits in 2004. We subsequently sold our Ryanair position.
In the leisure sector, performance likewise suffered due to adverse stock
selection and a relative overweighting. Going into the period, we believed our
positions in advertising-sensitive broadcasting stocks would benefit from
increased ad spending as the U.S. economy recovered. However, advertising
spending, particularly in local markets, appeared stagnant during the period.
Fund holdings such as media conglomerate Viacom and radio station operator
Clear Channel Communications detracted from relative performance. We cut back
both positions significantly during the period.
Stock selection in the financial services sector also held back relative
results. The largest detractor here was student loan agency SLM Corporation
(Sallie Mae). In our view, SLM shares' failure to keep pace with the broader
market was caused largely by uncertainty concerning the higher education lending
reauthorization bill that was pending before Congress. While this has been a
less contentious issue in the past, we recognize the potential for heightened
political risk during an election year. Over the longer term, however, we
believe SLM will likely use its fully integrated product and service platform to
continue to increase its competitive advantage. As such, we continued to hold
SLM as of period-end, although we did decrease our position during the period.
Individual stocks in other sectors that had a meaningful negative impact on
results included moderate-priced apparel retailer Kohl's. We believe mediocre
merchandising, together with adverse weather in key markets, caused the firm to
report weak operating results. We viewed these issues as surmountable and
maintained our Kohl's holding over the period. Our underweighted position in
pharmaceutical giant Pfizer was also a relative detractor, as its shares gained
more than the broad market. The fund's shares in Taiwan Semiconductor, the
world's largest dedicated foundry service provider, traded lower and were sold
out of the portfolio amid a general semiconductor correction as well as fears of
political instability in Taiwan. Meanwhile, our position in digital wireless
communications firm QUALCOMM also weighted on relative results. We were
underweighted in the stock, which soared over the period, and we also missed
some of that strong performance. An overweighting in electric commerce firm
InterActiveCorp also held back relative performance as the stock sank during the
period.
The portfolio's cash position, although it averaged less than 1% of assets over
the period, also detracted from relative performance. As with nearly all mutual
funds, this portfolio holds some cash to buy new holdings and to cover investor
exchanges or redemptions. In a period when equity markets rose sharply, cash
hurt performance against our benchmark, the Russell 1000 Growth Index, which has
no cash position.
CONTRIBUTORS TO PERFORMANCE
Relative returns over the period were boosted by individual holdings across a
variety of sectors. The strongest single contributor over the period was
conglomerate Tyco International, which did well as new management began to turn
around the firm's performance. Underweighting retail giant Wal-Mart also aided
relative performance as the company's shares significantly underperformed the
broad market over the period.
While overall stock selection in technology detracted from relative results, a
number of technology stocks were among the fund's top performers. These included
security software firm Symantec and telecom infrastructure firm Nortel Networks.
Valuation concerns led us to underweight semiconductor manufacturer Intel. This
helped relative results as the stock, which had soared for much of 2003,
retreated in early 2004. Carrying a below-index weight in semiconductor
manufacturing equipment company Applied Materials likewise contributed to
relative returns as the stock performed poorly. By period-end we had sold our
Applied Materials position.
The fund's position in pharmaceutical benefits manager (PBM) Caremark Rx helped
performance as the stock rose sharply over the period. PBMs are firms that help
other companies manage and contain the cost of prescription drug benefits
offered to employees. The fund's position in cruise line Carnival also helped
results as the stock performed strongly over the period.
Not owning pharmaceutical giant Merck also helped relative returns as the firm's
stock lost ground over the period. We avoided Merck because we felt its
medium-term growth prospects would be limited by patent expirations on key
products as well as by a dearth of new drugs in the development pipeline.
Respectfully,
/s/ Stephen Pesek
Stephen Pesek
Portfolio Manager
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any MFS
Fund's current or future investments.
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Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment- related news.
o From Week in Review, link to MFS Global Investment Perspective for our
current view of the world.
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PERFORMANCE SUMMARY THROUGH 2/29/04
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Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Performance results reflect the percentage change
in net asset value, including the reinvestment of any dividends and capital
gains distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
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Average annual
without sales charge
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Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr Life*
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A 1/2/1996 -- 28.76% -8.77% -0.44% 12.59%
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B 12/31/1999 -- 27.85% -9.35% -0.96% 12.23%
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C 12/31/1999 -- 27.85% -9.36% -0.95% 12.24%
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I 1/2/1997 -- 29.13% -8.44% -0.15% 12.82%
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R1 12/31/2002 -- 28.68% -8.79% -0.45% 12.58%
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R2 10/31/2003 -- 28.68% -8.79% -0.45% 12.58%
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Average annual
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Comparative benchmarks
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Average large-cap
growth fund+ 9.92% 33.18% -6.49% -3.82% 6.18%
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Russell 1000 Growth
Index# 12.17% 37.18% -4.85% -4.80% 7.17%
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Periods less than one year are actual, not annualized.
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Average annual
with sales charge
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Share
class 6-mo 1-yr 3-yr 5-yr Life*
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A -- 21.36% -10.55% -1.61% 11.78%
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B -- 23.85% -10.27% -1.32% 12.23%
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C -- 26.85% -9.36% -0.95% 12.24%
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I, R1, and R2 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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A 6.87% 28.76% -24.06% -2.18% 163.12%
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B 6.53% 27.85% -25.51% -4.70% 156.33%
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C 6.45% 27.85% -25.55% -4.67% 156.42%
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I 6.97% 29.13% -23.25% -0.73% 167.37%
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R1 6.80% 28.68% -24.11% -2.24% 162.94%
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R2 6.80% 28.68% -24.11% -2.24% 162.95%
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Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through February 29, 2004. 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 R1 and R2 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.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
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.
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PORTFOLIO OF INVESTMENTS (unaudited) - 2/29/04
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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 - 97.6%
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ISSUER SHARES $ VALUE
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U.S. Stocks - 92.2%
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Airlines - 1.0%
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Southwest Airlines Co. 582,300 $8,041,563
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Apparel Manufacturers - 1.8%
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Coach, Inc.* 129,800 $5,143,974
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Nike, Inc., "B" 116,500 8,533,625
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$13,677,599
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Automotive - 0.9%
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Harley-Davidson, Inc. 128,900 $6,847,168
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Banks & Credit Companies - 5.7%
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American Express Co. 294,100 $15,710,822
- --------------------------------------------------------------------------------------------
Citigroup, Inc. 204,200 10,263,092
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Fannie Mae 78,100 5,849,690
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MBNA Corp. 173,200 4,733,556
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SLM Corp. 192,500 8,063,825
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$44,620,985
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Biotechnology - 3.8%
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Amgen, Inc.* 149,300 $9,485,029
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Genzyme Corp.* 220,000 11,171,600
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Gilead Sciences, Inc.* 127,400 6,906,354
- --------------------------------------------------------------------------------------------
Protein Design Labs, Inc.* 92,900 2,229,600
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$29,792,583
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Broadcast & Cable TV - 3.0%
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Comcast Holdings Corp., "A"* 207,300 $6,227,292
- --------------------------------------------------------------------------------------------
EchoStar Communications Corp., "A"* 321,400 11,608,968
- --------------------------------------------------------------------------------------------
NTL, Inc.* 79,400 5,443,664
- --------------------------------------------------------------------------------------------
$23,279,924
- --------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.6%
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Franklin Resources, Inc. 34,100 $1,926,650
- --------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 146,100 8,942,781
- --------------------------------------------------------------------------------------------
Morgan Stanley 32,000 1,912,320
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$12,781,751
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Business Services - 1.4%
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Affiliated Computer Services, Inc.^* 80,000 $3,860,800
- --------------------------------------------------------------------------------------------
Fiserv, Inc.* 187,600 7,243,236
- --------------------------------------------------------------------------------------------
$11,104,036
- --------------------------------------------------------------------------------------------
Chemicals - 0.8%
- --------------------------------------------------------------------------------------------
3M Co. 48,500 $3,783,970
- --------------------------------------------------------------------------------------------
Monsanto Co. 70,000 2,312,800
- --------------------------------------------------------------------------------------------
$6,096,770
- --------------------------------------------------------------------------------------------
Computer Software - 6.7%
- --------------------------------------------------------------------------------------------
Cadence Design Systems, Inc.^* 78,400 $1,209,712
- --------------------------------------------------------------------------------------------
Manhattan Associates, Inc.^* 28,000 802,480
- --------------------------------------------------------------------------------------------
Mercury Interactive Corp.* 108,900 5,286,006
- --------------------------------------------------------------------------------------------
Microsoft Corp. 1,000,000 26,500,000
- --------------------------------------------------------------------------------------------
Oracle Corp.* 200,000 2,576,000
- --------------------------------------------------------------------------------------------
Symantec Corp.* 266,900 10,980,266
- --------------------------------------------------------------------------------------------
VERITAS Software Corp.* 166,600 5,067,972
- --------------------------------------------------------------------------------------------
$52,422,436
- --------------------------------------------------------------------------------------------
Computer Software - Systems - 1.7%
- --------------------------------------------------------------------------------------------
EMC Corp.* 466,500 $6,680,280
- --------------------------------------------------------------------------------------------
International Business Machines Corp. 65,300 6,301,450
- --------------------------------------------------------------------------------------------
$12,981,730
- --------------------------------------------------------------------------------------------
Consumer Goods & Services - 4.0%
- --------------------------------------------------------------------------------------------
Apollo Group, Inc.* 53,600 $4,081,640
- --------------------------------------------------------------------------------------------
Avon Products, Inc. 58,700 4,144,220
- --------------------------------------------------------------------------------------------
Career Education Corp.* 72,800 3,639,272
- --------------------------------------------------------------------------------------------
Colgate-Palmolive Co. 159,400 8,838,730
- --------------------------------------------------------------------------------------------
Procter & Gamble Co. 99,600 10,209,996
- --------------------------------------------------------------------------------------------
$30,913,858
- --------------------------------------------------------------------------------------------
Electrical Equipment - 7.4%
- --------------------------------------------------------------------------------------------
Danaher Corp.^ 90,100 $8,075,663
- --------------------------------------------------------------------------------------------
General Electric Co. 835,800 27,180,216
- --------------------------------------------------------------------------------------------
Tyco International Ltd. 795,700 22,733,149
- --------------------------------------------------------------------------------------------
$57,989,028
- --------------------------------------------------------------------------------------------
Electronics - 5.5%
- --------------------------------------------------------------------------------------------
Agere Systems, Inc., "B"* 400,000 $1,484,000
- --------------------------------------------------------------------------------------------
Analog Devices, Inc. 291,400 14,540,860
- --------------------------------------------------------------------------------------------
Intel Corp. 455,800 13,323,034
- --------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 47,500 1,527,125
- --------------------------------------------------------------------------------------------
Texas Instruments, Inc. 293,000 8,980,450
- --------------------------------------------------------------------------------------------
Xilinx, Inc.* 76,000 3,195,040
- --------------------------------------------------------------------------------------------
$43,050,509
- --------------------------------------------------------------------------------------------
Entertainment - 1.1%
- --------------------------------------------------------------------------------------------
Clear Channel Communications, Inc. 44,100 $1,898,064
- --------------------------------------------------------------------------------------------
Fox Entertainment Group, Inc.* 109,800 3,186,396
- --------------------------------------------------------------------------------------------
Viacom, Inc. 50,000 1,923,000
- --------------------------------------------------------------------------------------------
Walt Disney Co. 73,000 1,936,690
- --------------------------------------------------------------------------------------------
$8,944,150
- --------------------------------------------------------------------------------------------
Food & Drug Stores - 0.6%
- --------------------------------------------------------------------------------------------
Rite Aid Corp.* 300,000 $1,674,000
- --------------------------------------------------------------------------------------------
Walgreen Co. 94,100 3,355,606
- --------------------------------------------------------------------------------------------
$5,029,606
- --------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 2.9%
- --------------------------------------------------------------------------------------------
PepsiCo, Inc. 278,900 $14,474,910
- --------------------------------------------------------------------------------------------
SYSCO Corp. 203,300 8,060,845
- --------------------------------------------------------------------------------------------
$22,535,755
- --------------------------------------------------------------------------------------------
Gaming & Lodging - 1.4%
- --------------------------------------------------------------------------------------------
Carnival Corp. 236,800 $10,506,816
- --------------------------------------------------------------------------------------------
General Merchandise - 4.3%
- --------------------------------------------------------------------------------------------
Kohl's Corp.* 179,800 $9,259,700
- --------------------------------------------------------------------------------------------
Target Corp. 344,200 15,131,032
- --------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 156,600 9,327,096
- --------------------------------------------------------------------------------------------
$33,717,828
- --------------------------------------------------------------------------------------------
Insurance - 2.4%
- --------------------------------------------------------------------------------------------
AFLAC, Inc. 50,900 $2,067,049
- --------------------------------------------------------------------------------------------
American International Group, Inc. 224,700 16,627,800
- --------------------------------------------------------------------------------------------
$18,694,849
- --------------------------------------------------------------------------------------------
Internet - 2.5%
- --------------------------------------------------------------------------------------------
eBay, Inc.* 145,400 $10,012,244
- --------------------------------------------------------------------------------------------
InterActiveCorp.^* 300,600 9,790,542
- --------------------------------------------------------------------------------------------
$19,802,786
- --------------------------------------------------------------------------------------------
Leisure & Toys - 0.6%
- --------------------------------------------------------------------------------------------
International Game Technology 114,100 $4,477,284
- --------------------------------------------------------------------------------------------
Machinery & Tools - 0.1%
- --------------------------------------------------------------------------------------------
Eaton Corp. 19,600 $1,147,384
- --------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 4.6%
- --------------------------------------------------------------------------------------------
Cardinal Health, Inc. 201,300 $13,130,799
- --------------------------------------------------------------------------------------------
Caremark Rx, Inc.^* 320,700 10,345,782
- --------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.^* 150,000 7,987,500
- --------------------------------------------------------------------------------------------
HCA, Inc. 53,700 2,283,324
- --------------------------------------------------------------------------------------------
Lincare Holdings, Inc.^* 55,900 1,807,806
- --------------------------------------------------------------------------------------------
$35,555,211
- --------------------------------------------------------------------------------------------
Medical Equipment - 6.6%
- --------------------------------------------------------------------------------------------
Baxter International, Inc. 133,900 $3,899,168
- --------------------------------------------------------------------------------------------
Biomet, Inc. 156,800 6,112,064
- --------------------------------------------------------------------------------------------
C.R. Bard, Inc. 84,800 8,004,272
- --------------------------------------------------------------------------------------------
Guidant Corp. 126,300 8,606,082
- --------------------------------------------------------------------------------------------
Invitrogen Corp.* 28,900 2,129,930
- --------------------------------------------------------------------------------------------
Medtronic, Inc. 167,800 7,869,820
- --------------------------------------------------------------------------------------------
Thermo Electron Corp.* 211,800 5,945,226
- --------------------------------------------------------------------------------------------
Waters Corp.* 110,700 4,089,258
- --------------------------------------------------------------------------------------------
Zimmer Holdings, Inc.* 65,900 4,984,676
- --------------------------------------------------------------------------------------------
$51,640,496
- --------------------------------------------------------------------------------------------
Oil Services - 1.6%
- --------------------------------------------------------------------------------------------
BJ Services Co.* 30,100 $1,303,029
- --------------------------------------------------------------------------------------------
Cooper Cameron Corp.* 94,700 4,187,634
- --------------------------------------------------------------------------------------------
Halliburton Co. 103,100 3,295,076
- --------------------------------------------------------------------------------------------
Smith International, Inc.* 73,800 3,739,446
- --------------------------------------------------------------------------------------------
$12,525,185
- --------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.1%
- --------------------------------------------------------------------------------------------
Apple Computer, Inc. 135,900 $3,252,087
- --------------------------------------------------------------------------------------------
Dell, Inc.* 394,000 12,864,100
- --------------------------------------------------------------------------------------------
$16,116,187
- --------------------------------------------------------------------------------------------
Pharmaceuticals - 8.2%
- --------------------------------------------------------------------------------------------
Abbott Laboratories 258,900 $11,080,920
- --------------------------------------------------------------------------------------------
Allergan, Inc. 102,000 8,929,080
- --------------------------------------------------------------------------------------------
Eli Lilly & Co. 69,500 5,138,830
- --------------------------------------------------------------------------------------------
Johnson & Johnson 300,000 16,173,000
- --------------------------------------------------------------------------------------------
Pfizer, Inc. 450,000 16,492,500
- --------------------------------------------------------------------------------------------
Wyeth 147,200 5,814,400
- --------------------------------------------------------------------------------------------
$63,628,730
- --------------------------------------------------------------------------------------------
Restaurants - 0.5%
- --------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 72,400 $3,503,436
- --------------------------------------------------------------------------------------------
Specialty Stores - 2.4%
- --------------------------------------------------------------------------------------------
Best Buy Co., Inc. 45,000 $2,396,250
- --------------------------------------------------------------------------------------------
CarMax, Inc.* 61,400 2,087,600
- --------------------------------------------------------------------------------------------
Home Depot, Inc. 171,800 6,238,058
- --------------------------------------------------------------------------------------------
Pacific Sunwear of California, Inc.* 52,600 1,260,822
- --------------------------------------------------------------------------------------------
PETsMART, Inc. 116,400 3,159,096
- --------------------------------------------------------------------------------------------
Ross Stores, Inc. 63,400 2,031,970
- --------------------------------------------------------------------------------------------
Staples, Inc.* 45,100 1,182,522
- --------------------------------------------------------------------------------------------
$18,356,318
- --------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.3%
- --------------------------------------------------------------------------------------------
Andrew Corp.* 114,900 $2,047,518
- --------------------------------------------------------------------------------------------
Telecommunications - Wireline - 4.2%
- --------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 1,131,600 $26,139,960
- --------------------------------------------------------------------------------------------
Corning, Inc.* 125,400 1,573,770
- --------------------------------------------------------------------------------------------
Juniper Networks, Inc.* 77,300 1,999,751
- --------------------------------------------------------------------------------------------
QUALCOMM, Inc. 44,400 2,817,180
- --------------------------------------------------------------------------------------------
$32,530,661
- --------------------------------------------------------------------------------------------
Trucking - 0.5%
- --------------------------------------------------------------------------------------------
FedEx Corp. 58,100 $3,990,308
- --------------------------------------------------------------------------------------------
Total U.S. Stocks $718,350,448
- --------------------------------------------------------------------------------------------
Foreign Stocks - 5.4%
- --------------------------------------------------------------------------------------------
Australia - 0.8%
- --------------------------------------------------------------------------------------------
News Corp. Ltd., ADR (Broadcast & Cable TV)^ 163,700 $6,130,565
- --------------------------------------------------------------------------------------------
Bermuda - 0.8%
- --------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. (Electronics)* 137,900 $6,278,587
- --------------------------------------------------------------------------------------------
Canada - 0.9%
- --------------------------------------------------------------------------------------------
Nortel Networks Corp. (Telecommunications - Wireline)* 850,700 $6,788,586
- --------------------------------------------------------------------------------------------
Cayman Islands - 0.1%
- --------------------------------------------------------------------------------------------
Garmin Ltd. (Telecommunications - Wireline)^ 15,900 $728,856
- --------------------------------------------------------------------------------------------
Finland - 0.5%
- --------------------------------------------------------------------------------------------
Nokia Corp., ADR (Telecommunications - Wireless) 177,100 $3,855,467
- --------------------------------------------------------------------------------------------
Mexico - 0.2%
- --------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR (Broadcast & Cable TV) 41,600 $1,837,472
- --------------------------------------------------------------------------------------------
Switzerland - 1.1%
- --------------------------------------------------------------------------------------------
Alcon, Inc. (Medical Equipment) 31,500 $1,980,090
- --------------------------------------------------------------------------------------------
Roche Holding AG (Pharmaceuticals) 66,500 6,877,862
- --------------------------------------------------------------------------------------------
$8,857,952
- --------------------------------------------------------------------------------------------
United Kingdom - 1.0%
- --------------------------------------------------------------------------------------------
Amdocs Ltd. (Computer Software)* 178,600 $4,979,368
- --------------------------------------------------------------------------------------------
Vodafone Group PLC (Telecommunications - Wireless)* 1,101,700 2,749,596
- --------------------------------------------------------------------------------------------
$7,728,964
- --------------------------------------------------------------------------------------------
Total Foreign Stocks $42,206,449
- --------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $651,013,205) $760,556,897
- --------------------------------------------------------------------------------------------
Preferred Stocks - 0.9%
- --------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.9%
- --------------------------------------------------------------------------------------------
News Corp. Ltd., ADR 215,500 $7,053,315
- --------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $6,831,510) $7,053,315
- --------------------------------------------------------------------------------------------
Short-Term Obligations - 0.5%
- --------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- --------------------------------------------------------------------------------------------
General Electric Capital Corp., due 3/01/04,
at Amortized Cost $3,997 $3,997,000
- --------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 4.7%
- --------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- --------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Identified Cost 36,766 $36,766,309
- --------------------------------------------------------------------------------------------
Repurchase Agreements - 2.5%
- --------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- --------------------------------------------------------------------------------------------
Merrill Lynch, dated 2/27/04, due 3/01/04, total to be
received $19,157,644 (secured by various U.S. Treasury
and Federal Agency obligations in a jointly traded
account), at Cost $19,156 $19,156,000
- --------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $717,764,024) $827,529,521
- --------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (6.2)% (48,274,289)
- --------------------------------------------------------------------------------------------
Net Assets - 100.0% $779,255,232
- --------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
See notes to financial statements.
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 2/29/04
ASSETS
Investments, at value, including $35,976,692 of securities
on loan (identified cost, $717,764,024) $827,529,521
- --------------------------------------------------------------------------------------------------
Cash 357
- --------------------------------------------------------------------------------------------------
Foreign currency, at value (identified cost, $1,044) 1,044
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 17,488,806
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 1,145,599
- --------------------------------------------------------------------------------------------------
Interest and dividends receivable 592,582
- --------------------------------------------------------------------------------------------------
Total assets $846,757,909
- --------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $26,728,145
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 3,773,078
- --------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 36,766,309
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 48,036
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 9,045
- --------------------------------------------------------------------------------------------------
Distribution and service fee 37,646
- --------------------------------------------------------------------------------------------------
Administrative fee 1,121
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 139,297
- --------------------------------------------------------------------------------------------------
Total liabilities $67,502,677
- --------------------------------------------------------------------------------------------------
Net assets $779,255,232
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $860,904,979
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 109,765,786
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (188,346,269)
- --------------------------------------------------------------------------------------------------
Accumulated net investment loss (3,069,264)
- --------------------------------------------------------------------------------------------------
Total $779,255,232
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 51,070,685
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $487,808,324
- --------------------------------------------------------------------------------------------------
Shares outstanding 31,674,334
- --------------------------------------------------------------------------------------------------
Net asset value per share $15.40
- --------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$15.40) $16.34
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $166,416,879
- --------------------------------------------------------------------------------------------------
Shares outstanding 11,085,599
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.01
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $117,324,049
- --------------------------------------------------------------------------------------------------
Shares outstanding 7,814,707
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.01
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $4,267,024
- --------------------------------------------------------------------------------------------------
Shares outstanding 272,572
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $15.65
- --------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $3,433,680
- --------------------------------------------------------------------------------------------------
Shares outstanding 223,130
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $15.39
- --------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $5,276
- --------------------------------------------------------------------------------------------------
Shares outstanding 343
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $15.38
- --------------------------------------------------------------------------------------------------
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 (unaudited)
- --------------------------------------------------------------------------------------------------
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 SIX MONTHS ENDED 2/29/04
NET INVESTMENT INCOME (LOSS)
Income
- --------------------------------------------------------------------------------------------------
Dividends $3,190,470
- --------------------------------------------------------------------------------------------------
Interest 61,223
- --------------------------------------------------------------------------------------------------
Foreign taxes withheld (5,926)
- --------------------------------------------------------------------------------------------------
Total investment income $3,245,767
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $2,891,523
- --------------------------------------------------------------------------------------------------
Trustees' compensation 13,596
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 807,651
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 856,829
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 801,198
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 571,520
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 6,734
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 8
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 4
- --------------------------------------------------------------------------------------------------
Administrative fee 22,896
- --------------------------------------------------------------------------------------------------
Custodian fee 89,373
- --------------------------------------------------------------------------------------------------
Printing 38,845
- --------------------------------------------------------------------------------------------------
Postage 38,587
- --------------------------------------------------------------------------------------------------
Auditing fees 18,415
- --------------------------------------------------------------------------------------------------
Legal fees 2,164
- --------------------------------------------------------------------------------------------------
Miscellaneous 96,927
- --------------------------------------------------------------------------------------------------
Total expenses $6,256,270
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (44,976)
- --------------------------------------------------------------------------------------------------
Net expenses $6,211,294
- --------------------------------------------------------------------------------------------------
Net investment loss $(2,965,527)
- --------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $58,655,183
- --------------------------------------------------------------------------------------------------
Foreign currency transactions (24,016)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $58,631,167
- --------------------------------------------------------------------------------------------------
Change in unrealized depreciation
- --------------------------------------------------------------------------------------------------
Investments $(4,697,754)
- --------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies 612
- --------------------------------------------------------------------------------------------------
Net unrealized loss on investments and foreign currency
translation $(4,697,142)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $53,934,025
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $50,968,498
- --------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/29/04 8/31/03
(UNAUDITED)
INCREASE IN NET ASSETS
OPERATIONS
Net investment loss $(2,965,527) $(4,810,414)
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 58,631,167 (46,148,022)
- ---------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation (4,697,142) 111,640,686
- ------------------------------------------------------- ------------ -------------
Increase in net assets from operations $50,968,498 $60,682,250
- ------------------------------------------------------- ------------ -------------
Net increase (decrease) in net assets from fund share
transactions $(40,558,629) $88,713,665
- ------------------------------------------------------- ------------ -------------
Total increase in net assets $10,409,869 $149,395,915
- ------------------------------------------------------- ------------ -------------
NET ASSETS
At beginning of period $768,845,363 $619,449,448
- ---------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $3,069,264 and $103,737, respectively) $779,255,232 $768,845,363
- ---------------------------------------------------------------------------------------------------
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 semiannual period
and 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) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS A 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $14.41 $13.22 $16.89 $27.51 $19.46 $14.44
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.04) $(0.07) $(0.12) $(0.11) $(0.16) $--
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.03 1.26 (3.55) (9.73) 9.75 7.34
- -------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.99 $1.19 $(3.67) $(9.84) $9.59 $7.34
- -------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 declared to
shareholders $-- $-- $-- $(0.78) $(1.54) $(2.32)
- -------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $15.40 $14.41 $13.22 $16.89 $27.51 $19.46
- -------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+) 6.87++ 9.00 (21.73) (36.57) 51.38 54.33
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.38+ 1.42 1.47 1.52 1.25 0.88
- --------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.54)+ (0.52) (0.76) (0.56) (0.69) (0.01)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 163 312 257 283 303 240
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $487,808 $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 per share and the
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)
- --------------------------------------------------------------------------------------------------------------------------------
+ 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 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
SIX MONTHS YEARS ENDED 8/31
ENDED ------------------------------------------ PERIOD ENDED
CLASS B 2/29/04 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning of period $14.09 $13.01 $16.72 $27.41 $23.88
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.09) $(0.15) $(0.22) $(0.23) $(0.28)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.01 1.23 (3.49) (9.70) 3.81
- ----------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.92 $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 declared to
shareholders $-- $-- $-- $(0.76) $--
- ----------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $15.01 $14.09 $13.01 $16.72 $27.41
- ----------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 6.53++ 8.22 (22.13) (37.01) 14.74++
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.03+ 2.07 2.12 2.17 2.15+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.18)+ (1.18) (1.41) (1.20) (1.51)+
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 163 312 257 283 303
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $166,417 $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 reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------- PERIOD ENDED
CLASS C 2/29/04 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning of period $14.10 $13.02 $16.73 $27.43 $23.88
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.09) $(0.15) $(0.22) $(0.23) $(0.27)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.00 1.23 (3.49) (9.70) 3.82
- ------------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.91 $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 declared to shareholders $-- $-- $-- $(0.77) $--
- ------------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $15.01 $14.10 $13.02 $16.73 $27.43
- ------------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 6.45++ 8.29 (22.18) (36.99) 14.82++
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.03+ 2.07 2.12 2.17 2.15+
- --------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.18)+ (1.18) (1.41) (1.20) (1.50)+
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 163 312 257 283 303
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $117,324 $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 reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------
CLASS I 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $14.63 $13.37 $17.01 $27.63 $19.47 $14.46
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01) $(0.02) $(0.06) $(0.03) $(0.09) $--
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.03 1.28 (3.58) (9.80) 9.79 7.33
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $1.02 $1.26 $(3.64) $(9.83) $9.70 $7.33
- ----------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
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 declared to
shareholders $-- $-- $-- $(0.79) $(1.54) $(2.32)
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $15.65 $14.63 $13.37 $17.01 $27.63 $19.47
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 6.97++ 9.42 (21.40) (36.39) 51.77 54.40
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.03+ 1.07 1.12 1.15 0.94 0.71
- --------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.19)+ (0.16) (0.39) (0.14) (0.37) (0.02)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 163 312 257 283 303 240
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $4,267 $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 the 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)
- --------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS PERIOD
ENDED ENDED
CLASS R1** 2/29/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $14.41 $12.35
- ---------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.05) $(0.08)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 1.03 2.14##
- ------------------------------------------------------------------------ ------ ------
Total from investment operations $0.98 $2.06
- ------------------------------------------------------------------------ ------ ------
Net asset value, end of period $15.39 $14.41
- ------------------------------------------------------------------------ ------ ------
Total return (%) 6.80++ 16.68++
- ---------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.55+ 1.65+
- ---------------------------------------------------------------------------------------------------------
Net investment loss (0.68)+ (0.82)+
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover 163 312
- ---------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $3,434 $1,869
- ---------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
** Effective November 3, 2003, Class R shares have been renamed R1 shares.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect 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 the per share realized and
unrealized gains and losses at such time.
See notes to financial statements.
Financial Highlights - continued
PERIOD
ENDED
CLASS R2 2/29/04*
(UNAUDITED)
Net asset value, beginning of period $14.64
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.05)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 0.79###
- -----------------------------------------------------------------------------
Total from investment operations $0.74
- -----------------------------------------------------------------------------
Net asset value, end of period $15.38
- -----------------------------------------------------------------------------
Total return (%) 5.05++
- --------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.77+
- --------------------------------------------------------------------------------
Net investment loss (0.91)+
- --------------------------------------------------------------------------------
Portfolio turnover 163
- --------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $5
- --------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through February 29, 2004.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect 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 the per share realized and unrealized gains and
losses at such time.
See notes to financial statements.
Notes to Financial Statements (unaudited) - continued
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
(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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market prices where current market
prices are readily available, or the fund may fair value portfolio securities
under the direction of the Board of Trustees when a determination is made that
current market prices are not readily available. Equity securities in the
fund's portfolio for which market quotations are available are valued at the
last sale or official closing price as reported by an independent pricing
service 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. Equity securities traded over the counter are valued at the
last sales price traded each day as reported by an independent pricing
service, or to the extent there are no sales reported, such securities are
valued on the basis of quotations obtained from brokers and dealers. Equity
securities for which it is determined that current market prices are not
readily available will be fair valued under the direction of the Board of
Trustees. The fund may also fair value foreign equity securities in cases
where closing market prices are not readily available or are deemed not
reflective of readily available market prices. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the fund calculates its net
asset value (generally, the close of the New York Stock Exchange) that may
impact the value of securities traded in these foreign markets. In these
cases, the fund may utilize information from an external vendor or other
sources to adjust closing market prices of foreign equity securities to
reflect what it believes to be the fair value of the securities as of the
fund's valuation time. Because the frequency of significant events is not
predictable, fair valuation of foreign equity securities may occur on a
frequent basis. Short-term obligations with a remaining maturity in excess of
60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the fund's portfolio are valued at amortized cost, which
constitutes market value as determined by the Board of Trustees. Money market
mutual funds are valued at net asset value. 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.
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 - 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.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or 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 six months ended February 29, 2004, the fund's custodian
fees were reduced by $2,389 under this arrangement. The fund has entered into
a commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the six months ended February 29, 2004, the fund's miscellaneous
expenses were reduced by $42,587 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.
As of August 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(176,659,316)
---------------------------------------------------------
Post-October capital loss deferral (20,420,083)
---------------------------------------------------------
Post-October currency loss deferral (57,490)
---------------------------------------------------------
Unrealized appreciation 64,564,891
---------------------------------------------------------
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. As part of the settlement agreement
with the New York Attorney General concerning market timing and related
matters, MFS has agreed to reduce the fund's management fee to 0.65% of
average daily net assets for the period March 1, 2004, through February 28,
2009. During this time period, the Board of Trustees will continue to review
the appropriateness of all advisory fees in accordance with their oversight
responsibilities. After February, 28, 2009, the management fee will be
determined in accordance with then existing review policies approved by the
Board of Trustees overseeing the fund.
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 retired Trustees and an
unfunded retirement benefit deferral plan for current Trustees. Included in
Trustees' compensation is a net decrease of $10,460 as a result of the change
in the fund pension liability for current Trustees and a pension expense of
$13,372 for retired Trustees for the six months ended February 29, 2004.
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 up to the following annual percentage rates 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%
---------------------------------------------------------
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to Class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in Class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of Class R2 shares to MFS
for the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$53,125 for the six months ended February 29, 2004, 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,
Class R1, and Class R2 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. The 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the six months ended February 29, 2004, amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $4,981 $178 $399 $-- $--
- --------------------------------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February
29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual Percentage Rates 0.35% 1.00% 1.00% 0.50% 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 six months ended February 29, 2004,
were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $4,344 $169,453 $8,593
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, 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%, which amounted to
$424,090 for the six months ended February 29, 2004. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $138,873 for the six months ended February 29, 2004, as well as
other expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,246,519,720 and $1,291,276,828, 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 $767,662,061
---------------------------------------------------------
Gross unrealized appreciation $113,811,088
---------------------------------------------------------
Gross unrealized depreciation (53,943,628)
---------------------------------------------------------
Net unrealized appreciation $59,867,460
---------------------------------------------------------
(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:
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 7,536,749 $111,532,569 21,075,431 $274,422,174
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (10,295,227) (152,734,550) (18,249,215) (235,227,052)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) (2,758,478) $(41,201,981) 2,826,216 $39,195,122
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,199,892 $17,286,082 4,499,700 $57,190,193
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,154,714) (16,793,090) (2,266,015) (28,533,992)
- ------------------------------------------------------------------------------------------------------------
Net increase 45,178 $492,992 2,233,685 $28,656,201
- ------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 935,006 $13,447,986 3,430,072 $43,531,150
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (980,110) (14,312,713) (1,903,646) (23,968,254)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) (45,104) $(864,727) 1,526,426 $19,562,896
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 16,230 $242,764 55,893 $731,199
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (38,833) (590,600) (89,981) (1,156,127)
- ------------------------------------------------------------------------------------------------------------
Net decrease (22,603) $(347,836) (34,088) $(424,928)
- ------------------------------------------------------------------------------------------------------------
Six months ended Period ended
2/29/04 8/31/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 207,020 $3,017,830 215,934 $2,925,853
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (113,550) (1,659,927) (86,274) (1,201,479)
- ------------------------------------------------------------------------------------------------------------
Net increase 93,470 $1,357,903 129,660 $1,724,374
- ------------------------------------------------------------------------------------------------------------
Period months ended
2/29/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 343 $5,020
- -------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002,
through August 31, 2003.
** For the period from the inception of Class R2 shares, October 31, 2003,
through February 29, 2004.
(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 plus 0.50%. A commitment fee of $4,174, 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 six months ended February 29,
2004.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding regarding disclosure
of brokerage allocation practices in connection with fund sales. Under the terms
of the settlement, in which MFS neither admitted nor denied any wrongdoing, MFS
agreed to pay (one dollar) $1.00 in disgorgement and $50 million in penalty to
certain MFS funds, pursuant to a plan to be approved by an independent
distribution consultant. The agreement with the SEC is reflected in an order of
the SEC. The settlement order states that MFS failed to adequately disclose to
the Boards of Trustees and to shareholders of the MFS funds the specifics of its
preferred arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades.
As part of the settlement, MFS also agreed to retain an independent compliance
consultant to review the completeness of its disclosure to fund trustees and to
fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial advisers who support the sale of fund shares.
The brokerage allocation practices which were the subject of this proceeding
were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the Securities and
Exchange Commission ("SEC"), the New York Attorney General ("NYAG") and the
Bureau of Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in certain
MFS fund prospectuses regarding market timing and related matters (the "February
Settlements"). These regulators alleged that prospectus language for certain MFS
funds was false and misleading because, although the prospectuses for those
funds in the regulators' view indicated that the funds prohibited market timing,
MFS did not limit trading activity in 11 domestic large cap stock, high grade
bond and money market funds. MFS' former Chief Executive Officer, John W.
Ballen, and former President, Kevin R. Parke, have also reached agreement with
the SEC (Messrs. Ballen and Parke resigned their director and officer positions
with MFS on February 13, 2004). Under the terms of the February Settlements, MFS
and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds offered
to retail investors ("Retail Funds"), which has been funded by MFS and of which
$50 million is characterized as a penalty. This pool will be distributed in
accordance with a methodology developed by an independent distribution
consultant in consultation with MFS and the Boards of Trustees of the Retail
Funds, and acceptable to the SEC. MFS has further agreed with the NYAG to reduce
its management fees in the aggregate amount of approximately $25 million
annually over the next five years, and not to increase certain management fees
during this period. MFS has also paid an administrative fine to NH in the amount
of $1 million, which will be used for investor education purposes (NH will
retain $250,000 and $750,000 will be contributed to the North American
Securities Administrators Association's Investor Protection Trust). In addition,
MFS and the Retail Funds will adopt certain governance changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as trustees
of all MFS funds, and Mr. Ballen resigned his position as President of all MFS
funds, effective February 6, 2004. Messrs. Ballen and Parke will not be
returning to MFS or the MFS funds after their suspensions.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS fund, or
(ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act of
1933 and the Securities Exchange Act of 1934, the Investment Company Act of 1940
and the Investment Advisers Act of 1940, the Employee Retirement Income Security
Act of 1974, as well as fiduciary duties and other violations of common law. The
lawsuits seek unspecified compensatory damages. Insofar as any of the actions is
appropriately brought derivatively on behalf of any of the MFS funds, any
recovery will inure to the benefit of the funds. The defendants are reviewing
the allegations of the multiple complaints and will respond appropriately.
Additional lawsuits based on similar allegations may be filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not clear
whether these amounts will be sufficient to compensate shareholders for all of
the damage they allegedly sustained, whether certain shareholders or putative
class members may have additional claims to compensation, or whether the damages
that may be awarded in any of the actions will exceed these amounts. In the
event the MFS funds incur any losses, costs or expenses in connection with such
lawsuits, the Boards of Trustees of the affected funds may pursue claims on
behalf of such funds against any party that may have liability to the funds in
respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments will
not result in increased fund redemptions, reduced sales of fund shares, or other
adverse consequences to the funds.
- --------------------------------------------------------------------------------------------------------------
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
JOHN W. BALLEN(2)(5) (born 09/12/59) DAVID H. GUNNING(4) (born 05/30/42)
Trustee and President Trustee
Massachusetts Financial Services Company, Chief Cleveland-Cliffs Inc. (mining products and service
Executive Officer and Director (until February provider), Vice Chairman/Director (since April
2004) 2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
ROBERT J. MANNING(2)(7) (born 10/20/63) Electric Holdings, Inc. (welding equipment
Trustee manufacturer), Director; Southwest Gas Corporation
Massachusetts Financial Services Company, Chief (natural gas distribution company), Director
Executive Officer, President, Chief Investment
Officer and Director WILLIAM R. GUTOW (born 09/27/41)
Trustee
KEVIN R. PARKE(2)(5) (born 12/14/59) Private investor and real estate consultant;
Trustee Capitol Entertainment Management Company (video
Massachusetts Financial Services Company, franchise), Vice Chairman
President, Chief Investment Officer and Director
(until February 2004) AMY B. LANE(4) (born 02/08/53)
Trustee
ROBERT C. POZEN(2)(7) (born 08/08/46) Retired; Merrill Lynch & Co., Inc., Managing
Trustee Director, Investment Banking Group (1997 to
Massachusetts Financial Services Company, Chairman February 2001); Borders Group, Inc. (book and
(since February 2004); Harvard Law School music retailer), Director; Federal Realty
(education), John Olin Visiting Professor (since Investment Trust (real estate investment trust),
July 2002); Secretary of Economic Affairs, The Trustee
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice ABBY M. O'NEILL(3) (born 04/27/28)
Chairman (June 2000 to December 2001); Fidelity Trustee
Management & Research Company (investment Private investor; Rockefeller Financial Services,
adviser), President (March 1997 to July 2001); The Inc. (investment advisers), Chairman and Chief
Bank of New York (financial services), Director; Executive Officer
Bell Canada Enterprises (telecommunications),
Director; Telesat (satellite communications), LAWRENCE T. PERERA (born 06/23/35)
Director Trustee
Hemenway & Barnes (attorneys), Partner
JEFFREY L. SHAMES(2)(6) (born 06/02/55)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Chairman Trustee
(until February 2004) Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
J. ATWOOD IVES (born 05/01/36) CBL & Associates Properties, Inc. (real estate
Co-Chair investment trust), Director
Private investor; KeySpan Corporation (energy
related services), Director; Eastern Enterprises J. DALE SHERRATT (born 09/23/38)
(diversified services company), Chairman, Trustee Trustee
and Chief Executive Officer (until November 2000) Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WARD SMITH (born 09/13/30) (investor in health care companies), Managing
Co-Chair General Partner (since 1993); Cambridge
Private investor Nutraceuticals (professional nutritional
products), Chief Executive Officer (until May
LAWRENCE H. COHN, M.D. (born 03/11/37) 2001)
Trustee
Brigham and Women's Hospital, Chief of Cardiac ELAINE R. SMITH (born 04/25/46)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Independent health care industry consultant
(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.
(3) Retired December 31, 2003.
(4) Appointed Trustee on January 27, 2004.
(5) Resigned February 6, 2004.
(6) Resigned on February 13, 2004.
(7) Appointed Trustee on February 24, 2004.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN(1) (born 09/12/59) RICHARD M. HISEY (born 08/29/58)
Trustee and President Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Senior
Executive Officer and Director (until February Vice President (since July 2002); The Bank of New
2004) York, Senior Vice President (September 2000 to
July 2002); Lexington Global Asset Managers, Inc.,
JAMES R. BORDEWICK, JR. (born 03/06/59) Executive Vice President and Chief Financial
Assistant Secretary and Assistant Clerk Officer (prior to September 2000); Lexington
Massachusetts Financial Services Company, Senior Funds, Treasurer (prior to September 2000)
Vice President and Associate General Counsel
ROBERT J. MANNING(2) (born 10/20/63)
STEPHEN E. CAVAN (born 11/06/53) President
Secretary and Clerk Massachusetts Financial Services Company, Chief
Massachusetts Financial Services Company, Senior Executive Officer, President, Chief Investment
Vice President, General Counsel and Secretary Officer and Director
STEPHANIE A. DESISTO (born 10/01/53) ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers President
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus JAMES O. YOST (born 06/12/60)
Investment Management, Senior Vice President Assistant Treasurer
(prior to November 2002) Massachusetts Financial Services Company, Senior
Vice President
ROBERT R. FLAHERTY (born 09/18/63)
Assistant Treasurer
Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
(1) Resigned on February 6, 2004.
(2) Appointed President on February 6, 2004.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five
years thereafter to elect Trustees. Each Trustee and officer will hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Mr. Shames has served as a Trustee of the Trust continually since originally appointed until February 13,
2004. Messrs. Cohn, Sherratt and Smith, have served in their capacity as Trustee of the Trust continuously
since originally elected or appointed. Messrs. 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. Ballen was elected by
shareholders and served as a Trustee of the Trust from January 1, 2002 until February 6, 2004, and Mr. Parke
served as a Trustee of the Trust from January 1, 2002, until February 6, 2004. Ms. O'Neill retired on December
31, 2003. Mr. Gunning and Ms. Lane have served as Trustees of the Trust since January 27, 2004, and Messrs.
Manning and Pozen have served as Trustees since February 24, 2004.
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 109 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
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGER
Stephen Pesek
- ------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. The prospectus contains complete information on the fund's
investment objective(s), the risks associated with an investment in the fund,
the fees, charges and expenses involved, as well as other information about
the fund. The prospectus should be read carefully before investing.
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 and procedures 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 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
CGF-SEM-4/04 87M
MFS(R) Mutual Funds
SEMIANNUAL REPORT 2/29/04
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
The fund seeks capital appreciation and reasonable income.
- -------------------------------------------------------------------------------
To view MFS' statement concerning regulatory issues affecting the mutual fund
industry and the firm, please visit mfs.com.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- ----------------------------------------------------
FINANCIAL STATEMENTS 17
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 34
- ----------------------------------------------------
TRUSTEES AND OFFICERS 46
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 48
- ----------------------------------------------------
CONTACT INFORMATION 49
- ----------------------------------------------------
ASSET ALLOCATION 50
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
As the firm's new Chief Executive Officer, I want to thank you for your
continued trust in MFS and tell you about the series of actions we have taken
since our recent settlements with the regulators. These actions are designed
to enhance the governance structure of the MFS funds, tighten our business
practices, and strengthen the management team at MFS.
In early February, Robert Pozen joined MFS as non-executive Chairman. A
seasoned veteran of the mutual fund industry, Bob has held prior positions as
President of Fidelity Management & Research Company, as Associate General
Counsel of the Securities and Exchange Commission, and as a visiting professor
at Harvard Law School.
In an effort to develop and implement policies that we believe will set a new
standard in regulatory compliance, MFS has hired two new senior executives.
Jeffrey Carp is joining us as General Counsel with responsibility for all of
our legal affairs. Previously he was a senior partner with the law firm of
Hale and Dorr LLP. Also joining MFS in the new position of Executive Vice
President of Regulatory Affairs is Maria Dwyer, who returned to the firm after
serving as a senior executive at Fidelity. At MFS, Maria is in charge of
compliance, internal audit, and fund treasury.
In the area of governance, we have taken steps to enhance the independence of
our funds' boards of trustees to better protect the interests of shareholders.
We have independent board chairs and at least 75% of the trustees are
independent. The trustees will appoint not only their own counsel but also an
independent compliance officer. This officer will assist the boards and their
committees in monitoring the MFS funds' compliance with federal and
state regulations.
In February, MFS reached agreements with federal and state regulators to
settle their administrative proceedings against the firm and two senior
executives in connection with market timing and related issues. Under the
terms of the settlements, we agreed to pay $225 million to compensate affected
retail fund shareholders. The $225 million will be distributed in accordance
with a distribution plan developed by an independent consultant.
We have further agreed with state regulators to reduce management fees on
certain funds we advise by approximately $25 million annually over the next
five years and to pay an administrative fine of $1 million, which will be used
for the purpose of investor education. We have introduced a set of policies
designed to protect the MFS funds and MFS fund shareholders from market timing
abuses. By July, all MFS retail funds, except money market funds, will have a
2% redemption fee on short-term trades. Our global, international, high-yield,
mid- and small-cap funds will impose the 2% fee on redemptions or exchanges of
fund shares made within 30 calendar days of a share purchase. For all other
MFS funds, except money market funds, the 2% fee will be imposed on
redemptions or exchanges made within 5 business days of a share purchase. See
the fund prospectus for more information.
We continue to use fair value pricing, a strategy that minimizes the potential
for investors to take advantage of "stale" prices. These can occur, as one
example, when funds own foreign securities whose prices close on overseas
exchanges in different time zones. At the same time, we enhanced our
monitoring of excessive trading. We did so by increasing our staff and
updating our computer systems to improve our ability to detect excessive
trading in our funds. Finally, we are supporting industry efforts to establish
a "hard" 4 p.m. close on all trading, which would prevent the possibility of
late trading.
In March, MFS reached a second settlement with the SEC under an administrative
proceeding resolving the SEC's investigation into how we disclosed brokerage
allocation practices in connection with fund sales. According to the
settlement order, we did not effectively disclose the potential conflict of
interest that may arise from these arrangements.
Under the terms of the settlement, MFS has agreed to pay one dollar in
disgorgement and $50 million in penalty to MFS fund shareholders. The
settlement noted that MFS had policies in place designed to obtain best
execution of all trades of securities within MFS portfolios.
This past November, MFS eliminated the above mentioned practice of directing
brokerage commissions to certain firms in recognition of fund sales.
Additionally, we announced in March that we would ban the use of soft dollars
to acquire third-party securities research and market data. Soft dollars are
permitted under federal securities laws. In fact, it is a common industry
practice to use a portion of the brokerage commissions to pay for certain
research and execution products and services that are provided to asset
managers. MFS will now pay cash out of its own pocket for third-party research
and market data.
MFS continues to be financially strong, with more than U.S. $140 billion (as
of 12/31/03) in assets under management, which continued to be stable during
the first quarter of 2004. We also have the full support of our parent
company, Sun Life Financial, an internationally diversified financial services
firm that manages more than U.S. $269 billion (as of 12/31/03).
We chose to settle these two proceedings with the SEC so we could concentrate
on serving our fund shareholders. As Chief Investment Officer, my focus is on
ensuring that our portfolio teams work closely together and take full
advantage of all the resources available to them to deliver the best possible
investment performance.
As the inventor of the open-end mutual fund in America in 1924, MFS has a
strong tradition and culture of innovation. By strengthening our business and
governance practices, we believe we have an unprecedented opportunity to set a
new standard in the mutual fund industry.
As I look ahead, I do so with confidence. The collaboration among MFS
employees, many of whom have worked at the firm for their entire careers,
continues as we remain singularly dedicated to our clients. It has been our
sincere privilege to serve you, and we thank you for the confidence that you
have shown in MFS.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer
MFS Investment Management(R)
March 15, 2004
Note to Shareholders: On February 6, 2004, Jeffrey L. Shames retired as
Chairman of MFS. Robert Pozen was named as non-executive Chairman. Also,
on February 6, 2004, Robert J. Manning was appointed Chief Executive Officer,
President, and Chief Investment Officer.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 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 turnaround in global stock markets that began in the spring of 2003
continued for most of the six-month period ended February 29, 2004. The release
of increasingly positive economic numbers as the period progressed,
particularly with regard to corporate earnings and GDP (gross domestic product)
growth, helped drive the equity rally. By late 2003, corporate capital
spending, which had been weak for some time, had also begun to accelerate.
Another driver of the equity rally, in our view, was the U.S. Federal Reserve
Board's decision to leave interest rates at a four-decade low throughout the
period. While energy prices rose late in the period, core inflation - excluding
volatile food and energy prices - remained low relative to historical averages.
- ------------------------------------------------
TOP 5 SECTOR WEIGHTINGS 2/29/04
FINANCIAL SERVICES 30.2%
- ------------------------------------------------
ENERGY 12.1%
- ------------------------------------------------
CONSUMER STAPLES 10.7%
- ------------------------------------------------
UTILITIES AND COMMUNICATIONS 10.4%
- ------------------------------------------------
HEALTH CARE 8.9%
- ------------------------------------------------
The portfolio is actively managed, and current
weightings may be different.
DETRACTORS FROM PERFORMANCE
The fund underperformed its benchmark, the Russell 1000 Value Index (the Russell
Index), over the period. Stock selection in the leisure sector was a key
detractor from relative returns. Our position in media giant Viacom, the company
behind CBS and MTV, fell in price. The firm experienced disappointing growth in
advertising revenues, and its Blockbuster Video unit continued to post weak
sales growth. Our holding in cable operator Comcast also performed poorly after
the firm made a bid to acquire Disney late in the period. The fund did not own
Disney stock.
The fund's underweighting in financial services stocks, in comparison with the
Russell Index, also detracted from relative returns as the sector outperformed
the broad market over the period. Stock selection in the sector also detracted
modestly from results. Mellon Financial Corp., in particular, held back relative
returns. The firm reported lackluster earnings growth for the third quarter of
2003, and its projection of 2004 earnings, in our view, also proved
disappointing to investors.
The fund's cash position was also a key detractor from relative performance. As
with nearly all mutual funds, this fund holds some cash to buy new holdings and
to cover shareholder redemptions. In a period when equity markets rose sharply,
cash hurt performance against our benchmark, the Russell Index, which has no
cash position.
Our holding in medical products firm Johnson & Johnson also detracted from
relative results. Although the stock increased in price over the period, it
underperformed the overall market. Not owning communications equipment provider
Lucent Technologies also hurt relative performance. The stock rose sharply over
the period as wireless firms increased capital spending on infrastructure.
CONTRIBUTORS TO PERFORMANCE
Consumer staples and health care holdings were key contributors to the fund's
relative returns. In the consumer staples area, both stock selection and an
overweighting in the sector proved positive for results as the sector
outperformed the broad market for the period. Altria Group (formerly Philip
Morris) and Kimberly-Clark generated particularly strong returns. In our view,
food and tobacco conglomerate Altria benefited from decreased investor concerns
about litigation against the company. Paper products company Kimberly-Clark
generated stronger earnings than it had estimated, helped by the impact of a
weak U.S. dollar on its international revenues and improvements in some of its
key products such as Huggies diapers.
Although the fund was overweighted in health care, strong stock selection in the
sector also helped relative performance. Not owning pharmaceutical firm Merck
added to results as the company's stock, in our view, was adversely affected by
potential competition from generic drug companies and a weak pipeline of drugs
in development. The fund did have positions in Pfizer and Roche Holdings, and
both drug firms outperformed the broad market over the period. Pfizer's
performance was helped by a study that showed its cholesterol medication Lipitor
was more effective than a leading competitive product. We believe that
performance of Swiss pharmaceutical company Roche was helped by the company's
strong pipeline of new drugs, relatively low exposure to patent expirations on
key products, and opportunities to expand its profit margins.
Stocks in other sectors that contributed to performance included FleetBoston
Financial, Motorola, and Nortel Networks. FleetBoston's stock price rose sharply
when Bank of America announced its $47 billion takeover bid for Fleet. Motorola
benefited from its improved projections for cellular handset sales, driven in
part by new products and wireless number portability. Nortel's stock, like
Lucent's stock mentioned earlier, rose in price as wireless firms increased
capital spending on infrastructure. Nortel received a number of new contracts
during the period and stated that it expected further gains in its wireless
business. We sold our Nortel position when the stock reached our price target.
Respectfully,
/s/ Steven R. Gorham /s/ Lisa B. Nurme
Steven R. Gorham Lisa B. Nurme
Portfolio Manager Portfolio Manager
Note to Shareholders: Ms. Nurme has announced her retirement from MFS
effective on or about May 31, 2004. Upon Ms. Nurme's retirement, Mr. Gorham
will manage the fund.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any MFS
Fund's current or future investments.
- --------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Investment Perspective for our
current view of the world.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/29/04
- ------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as average annual total returns for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including reinvestment of dividends and capital gains
distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST CURRENT PERFORMANCE RESULTS. MARKET VOLATILITY CAN
SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/2/96 -- 36.36% 2.44% 7.84% 13.44%
- ------------------------------------------------------------------------------
B 11/4/97 -- 35.47% 1.77% 7.14% 12.88%
- ------------------------------------------------------------------------------
C 11/5/97 -- 35.52% 1.78% 7.16% 12.88%
- ------------------------------------------------------------------------------
I 1/2/97 -- 36.83% 2.77% 8.21% 13.68%
- ------------------------------------------------------------------------------
R1 12/31/02 -- 36.24% 2.39% 7.81% 13.42%
- ------------------------------------------------------------------------------
R2 10/31/03 -- 36.19% 2.40% 7.82% 13.42%
- ------------------------------------------------------------------------------
529A 7/31/02 -- 35.91% 2.28% 7.74% 13.37%
- ------------------------------------------------------------------------------
529B 7/31/02 -- 35.22% 1.96% 7.54% 13.24%
- ------------------------------------------------------------------------------
529C 7/31/02 -- 35.23% 1.97% 7.55% 13.25%
- --------------------
Average annual
- --------------------
Comparative benchmarks
- ------------------------------------------------------------------------------
Average equity
income fund+ 15.21% 37.18% 1.89% 3.93% 8.60%
- ------------------------------------------------------------------------------
Russell 1000 Value Index# 17.53% 42.30% 3.37% 4.50% 11.05%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
- --------------------
Average annual
with sales charge
- --------------------
Share
class
- ------------------------------------------------------------------------------
6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A -- 28.52% 0.44% 6.57% 12.62%
- ------------------------------------------------------------------------------
B -- 31.47% 0.79% 6.84% 12.88%
- ------------------------------------------------------------------------------
C -- 34.52% 1.78% 7.16% 12.88%
- ------------------------------------------------------------------------------
529A -- 28.10% 0.28% 6.47% 12.55%
- ------------------------------------------------------------------------------
529B -- 31.22% 0.99% 7.24% 13.24%
- ------------------------------------------------------------------------------
529C -- 34.23% 1.97% 7.55% 13.25%
- ------------------------------------------------------------------------------
I, R1 and R2 class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- --------------------
Cumulative without
sales charge
- --------------------
- ------------------------------------------------------------------------------
A 17.10% 36.36% 7.51% 45.87% 179.64%
- ------------------------------------------------------------------------------
B 16.69% 35.47% 5.40% 41.20% 168.57%
- ------------------------------------------------------------------------------
C 16.71% 35.52% 5.43% 41.33% 168.66%
- ------------------------------------------------------------------------------
I 17.23% 36.83% 8.54% 48.38% 184.59%
- ------------------------------------------------------------------------------
R1 16.99% 36.24% 7.34% 45.65% 179.22%
- ------------------------------------------------------------------------------
R2 16.95% 36.19% 7.38% 45.69% 179.30%
- ------------------------------------------------------------------------------
529A 16.82% 35.91% 7.00% 45.18% 178.33%
- ------------------------------------------------------------------------------
529B 16.54% 35.22% 6.00% 43.83% 175.73%
- ------------------------------------------------------------------------------
529C 16.55% 35.23% 6.03% 43.87% 175.81%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through February 29, 2004. 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 R1 and R2 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.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
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 (unaudited) - 2/29/04
- ---------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 97.6%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
U.S. Stocks - 88.9%
- ---------------------------------------------------------------------------------------------------
Aerospace - 2.8%
- ---------------------------------------------------------------------------------------------------
Honeywell International, Inc. 377,700 $13,238,385
- ---------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 1,273,500 58,937,580
- ---------------------------------------------------------------------------------------------------
Northrop Grumman Corp. 1,010,700 102,191,877
- ---------------------------------------------------------------------------------------------------
$174,367,842
- ---------------------------------------------------------------------------------------------------
Banks & Credit Companies - 19.4%
- ---------------------------------------------------------------------------------------------------
American Express Co. 1,310,200 $69,990,884
- ---------------------------------------------------------------------------------------------------
Bank of America Corp. 1,900,600 155,697,152
- ---------------------------------------------------------------------------------------------------
Bank One Corp. 1,353,900 73,083,522
- ---------------------------------------------------------------------------------------------------
Citigroup, Inc. 4,909,600 246,756,496
- ---------------------------------------------------------------------------------------------------
Fannie Mae 1,619,920 121,332,008
- ---------------------------------------------------------------------------------------------------
FleetBoston Financial Corp. 3,815,860 171,828,176
- ---------------------------------------------------------------------------------------------------
Mellon Financial Corp. 3,481,000 112,714,780
- ---------------------------------------------------------------------------------------------------
PNC Financial Services Group, Inc. 1,119,900 65,648,538
- ---------------------------------------------------------------------------------------------------
SouthTrust Corp. 866,000 29,097,600
- ---------------------------------------------------------------------------------------------------
SunTrust Banks, Inc. 1,908,030 137,969,649
- ---------------------------------------------------------------------------------------------------
Wells Fargo & Co. 272,000 15,599,200
- ---------------------------------------------------------------------------------------------------
$1,199,718,005
- ---------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.1%
- ---------------------------------------------------------------------------------------------------
Comcast Holdings Corp.* 3,214,800 $93,936,456
- ---------------------------------------------------------------------------------------------------
Cox Communications, Inc.^* 1,136,300 36,816,120
- ---------------------------------------------------------------------------------------------------
Time Warner, Inc.* 3,493,000 60,254,250
- ---------------------------------------------------------------------------------------------------
$191,006,826
- ---------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.8%
- ---------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc.* 1,274,700 $134,952,489
- ---------------------------------------------------------------------------------------------------
Janus Capital Group, Inc. 187,700 3,213,424
- ---------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 1,534,600 93,932,866
- ---------------------------------------------------------------------------------------------------
$232,098,779
- ---------------------------------------------------------------------------------------------------
Chemicals - 5.3%
- ---------------------------------------------------------------------------------------------------
Air Products & Chemicals, Inc. 1,343,368 $64,804,072
- ---------------------------------------------------------------------------------------------------
Dow Chemical Co. 1,428,600 62,101,242
- ---------------------------------------------------------------------------------------------------
E.I. du Pont de Nemours & Co. 1,032,800 46,568,952
- ---------------------------------------------------------------------------------------------------
Monsanto Co. 1,514,500 50,039,080
- ---------------------------------------------------------------------------------------------------
PPG Industries, Inc. 1,426,100 83,697,809
- ---------------------------------------------------------------------------------------------------
Praxair, Inc. 492,000 17,869,440
- ---------------------------------------------------------------------------------------------------
$325,080,595
- ---------------------------------------------------------------------------------------------------
Computer Software - 0.7%
- ---------------------------------------------------------------------------------------------------
Microsoft Corp. 1,702,000 $45,103,000
- ---------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.6%
- ---------------------------------------------------------------------------------------------------
Hewlett-Packard Co. 803,600 $18,249,756
- ---------------------------------------------------------------------------------------------------
International Business Machines Corp. 843,800 81,426,700
- ---------------------------------------------------------------------------------------------------
$99,676,456
- ---------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.1%
- ---------------------------------------------------------------------------------------------------
Kimberly-Clark Corp. 2,045,600 $132,309,408
- ---------------------------------------------------------------------------------------------------
Containers - 0.4%
- ---------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.^* 1,458,000 $27,060,480
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 1.2%
- ---------------------------------------------------------------------------------------------------
Emerson Electric Co. 1,233,500 $77,069,080
- ---------------------------------------------------------------------------------------------------
Electronics - 0.2%
- ---------------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 470,900 $15,139,435
- ---------------------------------------------------------------------------------------------------
Energy - Independent - 1.7%
- ---------------------------------------------------------------------------------------------------
Devon Energy Corp. 395,610 $22,462,736
- ---------------------------------------------------------------------------------------------------
Unocal Corp. 2,153,286 81,824,868
- ---------------------------------------------------------------------------------------------------
$104,287,604
- ---------------------------------------------------------------------------------------------------
Energy - Integrated - 5.2%
- ---------------------------------------------------------------------------------------------------
ChevronTexaco Corp. 627,500 $55,439,625
- ---------------------------------------------------------------------------------------------------
ConocoPhillips 1,796,700 123,738,729
- ---------------------------------------------------------------------------------------------------
Exxon Mobil Corp. 3,393,970 143,123,715
- ---------------------------------------------------------------------------------------------------
$322,302,069
- ---------------------------------------------------------------------------------------------------
Entertainment - 2.0%
- ---------------------------------------------------------------------------------------------------
Viacom, Inc. 3,173,843 $122,066,002
- ---------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 5.3%
- ---------------------------------------------------------------------------------------------------
Archer Daniels Midland Co. 5,640,615 $97,018,578
- ---------------------------------------------------------------------------------------------------
H.J. Heinz Co. 1,602,800 61,242,988
- ---------------------------------------------------------------------------------------------------
Kellogg Co.^ 3,047,500 120,345,775
- ---------------------------------------------------------------------------------------------------
PepsiCo, Inc. 239,176 12,413,234
- ---------------------------------------------------------------------------------------------------
Sara Lee Corp.^ 1,232,800 26,899,696
- ---------------------------------------------------------------------------------------------------
Tyson Foods, Inc.^ 725,300 11,517,764
- ---------------------------------------------------------------------------------------------------
$329,438,035
- ---------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.8%
- ---------------------------------------------------------------------------------------------------
Bowater, Inc.^ 574,000 $26,346,600
- ---------------------------------------------------------------------------------------------------
International Paper Co. 1,904,800 84,306,448
- ---------------------------------------------------------------------------------------------------
$110,653,048
- ---------------------------------------------------------------------------------------------------
General Merchandise - 0.3%
- ---------------------------------------------------------------------------------------------------
Sears, Roebuck & Co.^ 408,900 $19,222,389
- ---------------------------------------------------------------------------------------------------
Insurance - 6.3%
- ---------------------------------------------------------------------------------------------------
AFLAC, Inc. 544,700 $22,120,267
- ---------------------------------------------------------------------------------------------------
Allstate Corp. 1,689,590 77,095,992
- ---------------------------------------------------------------------------------------------------
Chubb Corp. 429,800 30,507,204
- ---------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. 869,755 56,968,952
- ---------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 319,100 15,313,609
- ---------------------------------------------------------------------------------------------------
MetLife, Inc. 3,031,210 106,547,031
- ---------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp. 4,597,773 83,495,558
- ---------------------------------------------------------------------------------------------------
$392,048,613
- ---------------------------------------------------------------------------------------------------
Machinery & Tools - 0.7%
- ---------------------------------------------------------------------------------------------------
Deere & Co. 675,516 $43,388,393
- ---------------------------------------------------------------------------------------------------
Medical Equipment - 0.7%
- ---------------------------------------------------------------------------------------------------
Baxter International, Inc. 635,300 $18,499,936
- ---------------------------------------------------------------------------------------------------
C.R. Bard, Inc. 82,200 7,758,858
- ---------------------------------------------------------------------------------------------------
Guidant Corp. 213,300 14,534,262
- ---------------------------------------------------------------------------------------------------
$40,793,056
- ---------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.7%
- ---------------------------------------------------------------------------------------------------
Keyspan Corp. 597,600 $22,708,800
- ---------------------------------------------------------------------------------------------------
National Fuel Gas Co. 708,232 17,918,270
- ---------------------------------------------------------------------------------------------------
$40,627,070
- ---------------------------------------------------------------------------------------------------
Oil Services - 2.0%
- ---------------------------------------------------------------------------------------------------
Baker Hughes, Inc. 463,300 $17,429,346
- ---------------------------------------------------------------------------------------------------
GlobalSantaFe Corp. 495,600 14,620,200
- ---------------------------------------------------------------------------------------------------
Noble Corp.* 1,343,150 54,531,890
- ---------------------------------------------------------------------------------------------------
Schlumberger Ltd. 559,510 36,082,800
- ---------------------------------------------------------------------------------------------------
$122,664,236
- ---------------------------------------------------------------------------------------------------
Pharmaceuticals - 5.8%
- ---------------------------------------------------------------------------------------------------
Abbott Laboratories 1,427,800 $61,109,840
- ---------------------------------------------------------------------------------------------------
Eli Lilly & Co. 422,300 31,224,862
- ---------------------------------------------------------------------------------------------------
Johnson & Johnson 2,697,500 145,422,225
- ---------------------------------------------------------------------------------------------------
Pfizer, Inc. 1,656,350 60,705,227
- ---------------------------------------------------------------------------------------------------
Schering-Plough Corp. 1,708,700 30,688,252
- ---------------------------------------------------------------------------------------------------
Wyeth 738,300 29,162,850
- ---------------------------------------------------------------------------------------------------
$358,313,256
- ---------------------------------------------------------------------------------------------------
Printing & Publishing - 1.3%
- ---------------------------------------------------------------------------------------------------
Tribune Co.^ 1,630,344 $81,419,379
- ---------------------------------------------------------------------------------------------------
Railroads - 1.9%
- ---------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 768,400 $24,727,112
- ---------------------------------------------------------------------------------------------------
Union Pacific Corp. 1,422,800 90,546,992
- ---------------------------------------------------------------------------------------------------
$115,274,104
- ---------------------------------------------------------------------------------------------------
Restaurants - 0.6%
- ---------------------------------------------------------------------------------------------------
McDonald's Corp. 1,377,600 $38,986,080
- ---------------------------------------------------------------------------------------------------
Specialty Stores - 0.2%
- ---------------------------------------------------------------------------------------------------
TJX Cos., Inc. 558,100 $13,143,255
- ---------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 0.5%
- ---------------------------------------------------------------------------------------------------
Motorola, Inc. 1,830,300 $33,769,035
- ---------------------------------------------------------------------------------------------------
Telephone Services - 4.6%
- ---------------------------------------------------------------------------------------------------
SBC Communications, Inc. 4,535,500 $108,897,355
- ---------------------------------------------------------------------------------------------------
Sprint Corp. 1,791,600 31,765,068
- ---------------------------------------------------------------------------------------------------
Verizon Communications, Inc. 3,706,900 142,085,477
- ---------------------------------------------------------------------------------------------------
$282,747,900
- ---------------------------------------------------------------------------------------------------
Tobacco - 2.5%
- ---------------------------------------------------------------------------------------------------
Altria Group, Inc. 2,722,330 $156,670,092
- ---------------------------------------------------------------------------------------------------
Utilities - Electric - 4.2%
- ---------------------------------------------------------------------------------------------------
Cinergy Corp.^ 1,066,200 $41,784,378
- ---------------------------------------------------------------------------------------------------
Dominion Resources, Inc. 375,900 23,617,797
- ---------------------------------------------------------------------------------------------------
Energy East Corp. 1,395,800 33,722,528
- ---------------------------------------------------------------------------------------------------
Entergy Corp. 679,900 40,311,271
- ---------------------------------------------------------------------------------------------------
FirstEnergy Corp. 395,930 15,294,776
- ---------------------------------------------------------------------------------------------------
NSTAR 553,240 28,298,226
- ---------------------------------------------------------------------------------------------------
PPL Corp. 619,070 28,805,327
- ---------------------------------------------------------------------------------------------------
TXU Corp. 1,736,700 48,853,371
- ---------------------------------------------------------------------------------------------------
$260,687,674
- ---------------------------------------------------------------------------------------------------
Total U.S. Stocks $5,507,131,196
- ---------------------------------------------------------------------------------------------------
Foreign Stocks - 8.7%
- ---------------------------------------------------------------------------------------------------
Canada - 0.1%
- ---------------------------------------------------------------------------------------------------
Finning International, Inc. (Machinery & Tools) 254,200 $5,805,896
- ---------------------------------------------------------------------------------------------------
France - 0.8%
- ---------------------------------------------------------------------------------------------------
TOTAL S.A. (Energy - Integrated)^ 553,880 $50,951,421
- ---------------------------------------------------------------------------------------------------
Switzerland - 3.3%
- ---------------------------------------------------------------------------------------------------
Novartis AG (Pharmaceuticals)^ 1,595,300 $70,469,789
- ---------------------------------------------------------------------------------------------------
Roche Holding AG (Pharmaceuticals)^ 642,100 66,410,153
- ---------------------------------------------------------------------------------------------------
Syngenta AG (Chemicals)^ 951,040 66,113,274
- ---------------------------------------------------------------------------------------------------
$202,993,216
- ---------------------------------------------------------------------------------------------------
United Kingdom - 4.5%
- ---------------------------------------------------------------------------------------------------
BP PLC (Energy - Integrated) 2,692,300 $132,461,160
- ---------------------------------------------------------------------------------------------------
Diageo PLC (Alcoholic Beverages)* 2,217,873 30,717,378
- ---------------------------------------------------------------------------------------------------
Reed Elsevier PLC (Printing & Publishing) 8,027,700 73,985,233
- ---------------------------------------------------------------------------------------------------
Vodafone Group PLC (Telecommunications - Wireless) 17,459,900 43,575,987
- ---------------------------------------------------------------------------------------------------
$280,739,758
- ---------------------------------------------------------------------------------------------------
Total Foreign Stocks $540,490,291
- ---------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $5,140,631,363) $6,047,621,487
- ---------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.9%
- ---------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ---------------------------------------------------------------------------------------------------
Citicorp, due 3/11/04 $15,000 $14,995,708
- ---------------------------------------------------------------------------------------------------
Falcon Asset Securitization, due 3/08/04 50,000 49,989,986
- ---------------------------------------------------------------------------------------------------
General Electric Capital Corp., due 3/01/04 44,432 44,432,000
- ---------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., due 3/29/04 10,000 9,990,356
- ---------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $119,408,050
- ---------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 3.9%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Identified Cost 242,822,759 $242,822,759
- ---------------------------------------------------------------------------------------------------
Commercial Paper - 0.3%
- ---------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ---------------------------------------------------------------------------------------------------
Jupiter Securitization Corp., due 3/10/04,
at Amortized Cost $15,000 $14,996,138
- ---------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $5,517,858,310) $6,424,848,434
- ---------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (3.7)% (227,547,947)
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $6,197,300,487
- ---------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
See notes to financial statements.
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- ---------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 2/29/04
ASSETS
Investments, at value, including $234,590,460 of
securities on loan (identified cost, $5,517,858,310) $6,424,848,434
- ---------------------------------------------------------------------------------------------------
Cash 518
- ---------------------------------------------------------------------------------------------------
Foreign currency, at value (identified cost, $818,684) 818,684
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 113,410,239
- ---------------------------------------------------------------------------------------------------
Receivable for fund shares sold 15,171,876
- ---------------------------------------------------------------------------------------------------
Interest and dividends receivable 11,963,993
- ---------------------------------------------------------------------------------------------------
Total assets $6,566,213,744
- ---------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $107,392,706
- ---------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 17,396,756
- ---------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 242,822,759
- ---------------------------------------------------------------------------------------------------
Payable to affiliates
- ---------------------------------------------------------------------------------------------------
Management fee 303,179
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 255,582
- ---------------------------------------------------------------------------------------------------
Distribution and service fee 271,346
- ---------------------------------------------------------------------------------------------------
Administrative fee 5,439
- ---------------------------------------------------------------------------------------------------
Program manager fee 43
- ---------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 465,447
- ---------------------------------------------------------------------------------------------------
Total liabilities $368,913,257
- ---------------------------------------------------------------------------------------------------
Net assets $6,197,300,487
- ---------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $5,480,232,829
- ---------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 907,028,772
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (199,045,535)
- ---------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income 9,084,421
- ---------------------------------------------------------------------------------------------------
Total $6,197,300,487
- ---------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 295,691,534
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $3,631,645,883
- ---------------------------------------------------------------------------------------------------
Shares outstanding 173,009,999
- ---------------------------------------------------------------------------------------------------
Net asset value per share $20.99
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$20.99) $22.27
- ---------------------------------------------------------------------------------------------------
Class B shares
Net assets $1,240,838,097
- ---------------------------------------------------------------------------------------------------
Shares outstanding 59,417,321
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $20.88
- ---------------------------------------------------------------------------------------------------
Class C shares
Net assets $797,469,464
- ---------------------------------------------------------------------------------------------------
Shares outstanding 38,219,291
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $20.87
- ---------------------------------------------------------------------------------------------------
Class I shares
Net assets $490,481,629
- ---------------------------------------------------------------------------------------------------
Shares outstanding 23,285,745
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $21.06
- ---------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $34,732,612
- ---------------------------------------------------------------------------------------------------
Shares outstanding 1,656,956
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.96
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class R2 shares
Net assets $5,629
- ---------------------------------------------------------------------------------------------------
Shares outstanding 268.66
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.95
- ---------------------------------------------------------------------------------------------------
Class 529A shares
Net assets $1,216,338
- ---------------------------------------------------------------------------------------------------
Shares outstanding 58,121
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $20.93
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$20.93) $22.21
- ---------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $310,721
- ---------------------------------------------------------------------------------------------------
Shares outstanding 14,946
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $20.79
- ---------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $600,114
- ---------------------------------------------------------------------------------------------------
Shares outstanding 28,886
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $20.78
- ---------------------------------------------------------------------------------------------------
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 (unaudited)
- --------------------------------------------------------------------------------------------------
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 SIX MONTHS ENDED 2/29/04
NET INVESTMENT INCOME
Income
- --------------------------------------------------------------------------------------------------
Dividends $61,629,080
- --------------------------------------------------------------------------------------------------
Interest 1,194,331
- --------------------------------------------------------------------------------------------------
Foreign taxes withheld (558,020)
- --------------------------------------------------------------------------------------------------
Total investment income $62,265,391
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $16,784,216
- --------------------------------------------------------------------------------------------------
Trustees' compensation 39,197
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 5,210,811
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 5,810,127
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 5,718,091
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 3,595,553
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 56,536
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 9
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 1,702
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 1,212
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 2,439
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 1,216
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 303
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 610
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 4
- --------------------------------------------------------------------------------------------------
Administrative fee 111,384
- --------------------------------------------------------------------------------------------------
Custodian fee 688,124
- --------------------------------------------------------------------------------------------------
Printing 195,586
- --------------------------------------------------------------------------------------------------
Postage 148,795
- --------------------------------------------------------------------------------------------------
Auditing fees 17,500
- --------------------------------------------------------------------------------------------------
Legal fees 9,283
- --------------------------------------------------------------------------------------------------
Miscellaneous 261,358
- --------------------------------------------------------------------------------------------------
Total expenses $38,654,056
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (185,034)
- --------------------------------------------------------------------------------------------------
Net expenses $38,469,022
- --------------------------------------------------------------------------------------------------
Net investment income $23,796,369
- --------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $168,940,372
- --------------------------------------------------------------------------------------------------
Foreign currency transactions 80,677
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $169,021,049
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation
- --------------------------------------------------------------------------------------------------
Investments $695,006,925
- --------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 54,441
- --------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $695,061,366
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $864,082,415
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $887,878,784
- --------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/29/04 8/31/03
(UNAUDITED)
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment income $23,796,369 $46,259,245
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 169,021,049 (203,589,128)
- ----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign
currency translation 695,061,366 467,908,972
- ----------------------------------------------------- -------------- --------------
Increase in net assets from operations $887,878,784 $310,579,089
- ----------------------------------------------------- -------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- ----------------------------------------------------------------------------------------------------
Class A $(18,474,876) $(30,155,170)
- ----------------------------------------------------------------------------------------------------
Class B (2,876,901) (6,842,835)
- ----------------------------------------------------------------------------------------------------
Class C (1,848,690) (3,806,070)
- ----------------------------------------------------------------------------------------------------
Class I (2,638,351) (2,484,936)
- ----------------------------------------------------------------------------------------------------
Class R1 (92,742) (42,804)
- ----------------------------------------------------------------------------------------------------
Class R2 (12) --
- ----------------------------------------------------------------------------------------------------
Class 529A (3,232) (4,879)
- ----------------------------------------------------------------------------------------------------
Class 529B (371) (524)
- ----------------------------------------------------------------------------------------------------
Class 529C (753) (1,190)
- ----------------------------------------------------- -------------- --------------
Total distributions declared to shareholders $(25,935,928) $(43,338,408)
- ----------------------------------------------------- -------------- --------------
Net increase in net assets from fund share
transactions $265,682,479 $1,508,028,261
- ----------------------------------------------------- -------------- --------------
Total increase in net assets $1,127,625,335 $1,775,268,942
- ----------------------------------------------------- -------------- --------------
NET ASSETS
At beginning of period $5,069,675,152 $3,294,406,210
- ----------------------------------------------------------------------------------------------------
At end of period (including accumulated
undistributed net investment income of $9,084,421
and $11,223,980, respectively) $6,197,300,487 $5,069,675,152
- ----------------------------------------------------------------------------------------------------
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 semiannual period
and 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) held for the entire period.
SIX MONTHS YEAR ENDED 8/31
ENDED ------------------------------------------------------------------------------
CLASS A 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning
of period $18.03 $17.21 $19.28 $19.38 $17.17 $14.20
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.10 $0.24 $0.20 $0.20 $0.24 $0.24
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investments and foreign
currency 2.97 0.81 (2.05) 0.44 2.43 3.17
- -------------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $3.07 $1.05 $(1.85) $0.64 $2.67 $3.41
- -------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment
income $(0.11) $(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 $(0.11) $(0.23) $(0.22) $(0.74) $(0.46) $(0.44)
- -------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period $20.99 $18.03 $17.21 $19.28 $19.38 $17.17
- -------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+) 17.10++ 6.22 (9.64) 3.19 15.95 24.27
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.18+ 1.20 1.25 1.21 1.30 1.36
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.03+ 1.41 1.05 1.00 1.38 1.47
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 25 55 48 63 83 97
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $3,631,646 $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 reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
(+) 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
SIX MONTHS YEAR ENDED 8/31
ENDED ----------------------------------------------------------------------------
CLASS B 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $17.94 $17.13 $19.19 $19.30 $17.11 $14.16
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.04 $0.12 $0.07 $0.07 $0.13 $0.14
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.95 0.81 (2.02) 0.45 2.42 3.15
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $2.99 $0.93 $(1.95) $0.52 $2.55 $3.29
- ---------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.05) $(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 $(0.05) $(0.12) $(0.11) $(0.63) $(0.36) $(0.34)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period $20.88 $17.94 $17.13 $19.19 $19.30 $17.11
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 16.69++ 5.50 (10.20) 2.55 15.19 23.47
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.83+ 1.85 1.90 1.86 1.95 2.01
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.39+ 0.76 0.40 0.35 0.73 0.83
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 25 55 48 63 83 97
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $1,240,838 $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 reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS C 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $17.93 $17.12 $19.18 $19.30 $17.10 $14.16
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.04 $0.12 $0.07 $0.07 $0.13 $0.14
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency 2.95 0.81 (2.02) 0.44 2.43 3.15
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $2.99 $0.93 $(1.95) $0.51 $2.56 $3.29
- ------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.05) $(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 $(0.05) $(0.12) $(0.11) $(0.63) $(0.36) $(0.35)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $20.87 $17.93 $17.12 $19.18 $19.30 $17.10
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 16.71++ 5.52 (10.21) 2.52 15.27 23.47
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.83+ 1.85 1.90 1.86 1.95 2.01
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.39+ 0.76 0.40 0.35 0.73 0.84
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 25 55 48 63 83 97
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $797,469 $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 reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS I 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $18.10 $17.27 $19.35 $19.47 $17.24 $14.22
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.14 $0.30 $0.27 $0.28 $0.30 $0.31
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.96 0.82 (2.06) 0.44 2.44 3.20
- --------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $3.10 $1.12 $(1.79) $0.72 $2.74 $3.51
- --------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.14) $(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 $(0.14) $(0.29) $(0.29) $(0.84) $(0.51) $(0.49)
- --------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $21.06 $18.10 $17.27 $19.35 $19.47 $17.24
- --------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 17.23++ 6.61 (9.35) 3.58 16.36 24.97
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.84+ 0.85 0.90 0.86 0.95 1.01
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.39+ 1.76 1.40 1.35 1.65 1.85
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 25 55 48 63 83 97
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $490,482 $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 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 reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS PERIOD
ENDED ENDED
CLASS R1** 2/29/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $18.01 $16.52
- ---------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.09 $0.15
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 2.96 1.46
- --------------------------------------------------------------------- ------- ------
Total from investment operations $3.05 $1.61
- --------------------------------------------------------------------- ------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.10) $(0.12)
- --------------------------------------------------------------------- ------- ------
Net asset value, end of period $20.96 $18.01
- --------------------------------------------------------------------- ------- ------
Total return (%) 16.99++ 9.82++
- ---------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.35+ 1.42+
- ---------------------------------------------------------------------------------------------------------
Net investment income 0.92+ 1.26+
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover 25 55
- ---------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $34,733 $14,583
- ---------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
** Effective November 3, 2003, Class R shares have been renamed R1 shares.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
See notes to financial statements.
Financial Highlights - continued
PERIOD
ENDED
CLASS R2 2/29/04*
(UNAUDITED)
Net asset value, beginning of period $18.80
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.05
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 2.15
- ------------------------------------------------------------------- -------
Total from investment operations $2.20
- ------------------------------------------------------------------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.05)
- ------------------------------------------------------------------- -------
Net asset value, end of period $20.95
- ------------------------------------------------------------------- -------
Total return (%) 11.70++
- -------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.58+
- -------------------------------------------------------------------------------
Net investment income 0.71+
- -------------------------------------------------------------------------------
Portfolio turnover 25
- -------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $6
- -------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through February 29, 2004.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS PERIOD
ENDED YEAR ENDED ENDED
CLASS 529A 2/29/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $17.97 $17.21 $17.01
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.08 $0.20 $0.03
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 2.94 0.81 0.17
- -------------------------------------------------------------- ------ ------ ------
Total from investment operations $3.02 $1.01 $0.20
- -------------------------------------------------------------- ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.06) $(0.25) $--
- -------------------------------------------------------------- ------ ------ ------
Net asset value, end of period $20.93 $17.97 $17.21
- -------------------------------------------------------------- ------ ------ ------
Total return (%)(+) 16.82++ 5.97 1.18++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.44+ 1.48 1.50+
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.79+ 1.20 2.23+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 25 55 48
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,216 $806 $10
- --------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A shares, August 1, 2002, through August 31, 2002.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
(+) 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.
Financial Highlights - continued
SIX MONTHS PERIOD
ENDED YEAR ENDED ENDED
CLASS 529B 2/29/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $17.87 $17.12 $16.93
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.01 $0.09 $0.02
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 2.94 0.80 0.17
- -------------------------------------------------------------- ------ ------ ------
Total from investment operations $2.95 $0.89 $0.19
- -------------------------------------------------------------- ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.03) $(0.14) $--
- -------------------------------------------------------------- ------ ------ ------
Net asset value, end of period $20.79 $17.87 $17.12
- -------------------------------------------------------------- ------ ------ ------
Total return (%) 16.54++ 5.29 1.12++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.08+ 2.13 2.15+
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.15+ 0.52 1.33+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 25 55 48
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $311 $181 $6
- --------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B shares, August 1, 2002, through August 31, 2002.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS PERIOD
ENDED YEAR ENDED ENDED
CLASS 529C 2/29/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $17.86 $17.11 $16.92
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.02 $0.09 $0.02
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 2.93 0.80 0.17
- -------------------------------------------------------------- ------ ------ ------
Total from investment operations $2.95 $0.89 $0.19
- -------------------------------------------------------------- ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.03) $(0.14) $--
- -------------------------------------------------------------- ------ ------ ------
Net asset value, end of period $20.78 $17.86 $17.11
- -------------------------------------------------------------- ------ ------ ------
Total return (%) 16.55++ 5.31 1.12++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.08+ 2.13 2.15+
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.16+ 0.55 1.75+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 25 55 48
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $600 $352 $21
- --------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C shares, August 1, 2002, through August 31, 2002.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
(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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market prices where current market
prices are readily available, or the fund may fair value portfolio securities
under the direction of the Board of Trustees when a determination is made that
current market prices are not readily available. Equity securities in the
fund's portfolio for which market quotations are available are valued at the
last sale or official closing price as reported by an independent pricing
service 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. Equity securities traded over the counter are valued at the
last sales price traded each day as reported by an independent pricing
service, or to the extent there are no sales reported, such securities are
valued on the basis of quotations obtained from brokers and dealers. Equity
securities for which it is determined that current market prices are not
readily available will be fair valued under the direction of the Board of
Trustees. The fund may also fair value foreign equity securities in cases
where closing market prices are not readily available or are deemed not
reflective of readily available market prices. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the fund calculates its net
asset value (generally, the close of the NYSE) that may impact the value of
securities traded in these foreign markets. In these cases, the fund may
utilize information from an external vendor or other sources to adjust closing
market prices of foreign equity securities to reflect what it believes to be
the fair value of the securities as of the fund's valuation time. Because the
frequency of significant events is not predictable, fair valuation of foreign
equity securities may occur on a frequent basis. Short-term obligations with a
remaining maturity in excess of 60 days will be valued upon dealer-supplied
valuations. All other short-term obligations in the fund's portfolio are
valued at amortized cost, which constitutes market value as determined by the
Board of Trustees. Money market mutual funds are valued at net asset value.
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.
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 - 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.
On loans collateralized by cash, the cash collateral is invested in a money
market fund and 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 premium
and discount is amortized or accreted for financial statement purposes in
accordance with accounting principles generally accepted in the United States
of America. 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 six months ended February 29, 2004 the fund's custodian fees
were reduced by $14,773 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the six months ended February 29, 2004 the fund's miscellaneous
expenses were reduced by $170,261 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
- -------------------------------------------------------------------------------
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)
----------------------------------------------------------
Post-October capital loss deferral (88,681,815)
----------------------------------------------------------
Unrealized appreciation1 76,356,424
----------------------------------------------------------
Other temporary differences (13,257)
----------------------------------------------------------
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 on August 31, 2010 ($49,177,465) and
August 31, 2011 ($194,596,322).
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).
The fund has an unfunded, defined benefit plan for retired Trustees. Included
in Trustees' compensation is a pension expense of $651 for retired trustees
for the six months ended February 29, 2004.
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 up to the following annual percentage rates 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%
----------------------------------------------------------
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of class R2 shares to MFS
for the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$265,242 and $1,630 for the six months ended February 29, 2004 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 R1, Class R2, 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.50% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the six months ended February 29, 2004, amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $321,015 $1,816 $1,432 $-- $--
- -----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $347 $6 $24
- -----------------------------------------------------------------------------------------------------------------
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 six months ended February
29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual Percentage Rates 0.35% 1.00% 1.00% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Effective Annual Percentage Rates 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 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 six months ended February 29, 2004 were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred Sales
Charges Imposed $22,536 $1,146,495 $65,618 $60 $--
- --------------------------------------------------------------------------------
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 - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, 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%, which amounted to
$3,077,106 for the six months ended February 29, 2004. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $998,887 for the six months ended February 29, 2004, as well as
other expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,691,691,551 and $1,376,872,611, 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 $5,553,469,292
--------------------------------------------------------
Gross unrealized appreciation $895,272,218
--------------------------------------------------------
Gross unrealized depreciation (23,893,076)
--------------------------------------------------------
Net unrealized appreciation $871,379,142
--------------------------------------------------------
(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:
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 38,822,814 $755,231,799 124,630,755 $2,082,051,438
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 817,924 15,166,106 1,432,223 23,884,644
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (35,151,548) (689,800,351) (63,302,566) (1,055,785,399)
- ----------------------------------------------------------------------------------------------------------
Net increase 4,489,190 $80,597,554 62,760,412 $1,050,150,683
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 5,768,312 $111,504,422 18,732,927 $310,631,777
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 124,618 2,296,677 331,330 5,479,523
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (6,080,907) (118,068,289) (13,374,299) (218,917,180)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) (187,977) $(4,267,190) 5,689,958 $97,194,120
- ----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 5,799,261 $111,610,736 15,604,268 $260,250,104
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 63,999 1,178,842 147,871 2,447,102
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (3,807,392) (74,283,651) (7,256,171) (118,974,937)
- ----------------------------------------------------------------------------------------------------------
Net increase 2,055,868 $38,505,927 8,495,968 $143,722,269
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 8,009,153 $156,106,934 13,752,753 $232,245,954
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 129,031 2,405,572 124,511 2,096,324
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (1,262,357) (24,866,102) (1,921,607) (32,344,876)
- ----------------------------------------------------------------------------------------------------------
Net increase 6,875,827 $133,646,404 11,955,657 $201,997,402
- ----------------------------------------------------------------------------------------------------------
Six months ended Period ended
2/29/04 8/31/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 1,557,047 $30,514,009 1,393,305 $23,639,438
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 4,999 92,973 2,457 41,829
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (714,582) (13,936,844) (586,270) (9,912,319)
- ----------------------------------------------------------------------------------------------------------
Net increase 847,464 $16,670,138 809,492 $13,768,948
- ----------------------------------------------------------------------------------------------------------
Period ended
2/29/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 268 $5,020
- -----------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1 12
- -----------------------------------------------------------------------
Net increase 269 $5,032
- -----------------------------------------------------------------------
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 14,664 $288,564 44,772 $739,807
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 170 3,219 287 4,856
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (1,585) (32,415) (784) (13,279)
- ----------------------------------------------------------------------------------------------------------
Net increase 13,249 $259,368 44,275 $731,384
- ----------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 5,147 $99,184 9,960 $168,230
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 20 371 149 523
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (339) (6,930) (336) (5,451)
- ----------------------------------------------------------------------------------------------------------
Net increase 4,828 $92,625 9,773 $163,302
- ----------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 12,362 $237,270 16,923 $299,704
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 41 756 1,590 1,190
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (3,238) (65,405) (45) (741)
- ----------------------------------------------------------------------------------------------------------
Net increase 9,165 $172,621 18,468 $300,153
- ----------------------------------------------------------------------------------------------------------
* Commencement of operations December 31, 2002.
** Commencement of operations October 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 plus 0.50%. 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 calendar quarter. The commitment fee allocated to the
fund for the six months ended February 29, 2004 was $33,623. The fund had no
significant borrowings during the period.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding regarding
disclosure of brokerage allocation practices in connection with fund sales.
Under the terms of the settlement, in which MFS neither admitted nor denied any
wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement and $50
million in penalty to certain MFS funds, pursuant to a plan to be approved by
an independent distribution consultant. The agreement with the SEC is reflected
in an order of the SEC. The settlement order states that MFS failed to
adequately disclose to the Boards of Trustees and to shareholders of the MFS
funds the specifics of its preferred arrangements with certain brokerage firms
selling MFS fund shares. The settlement order states that MFS had in place
policies designed to obtain best execution of all fund trades.
As part of the settlement, MFS also agreed to retain an independent compliance
consultant to review the completeness of its disclosure to fund trustees and
to fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial advisers who support the sale of fund
shares. The brokerage allocation practices which were the subject of this
proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the Securities and
Exchange Commission ("SEC"), the New York Attorney General ("NYAG") and the
Bureau of Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in certain
MFS fund prospectuses regarding market timing and related matters (the
"February Settlements"). These regulators alleged that prospectus language for
certain MFS funds was false and misleading because, although the prospectuses
for those funds in the regulators' view indicated that the funds prohibited
market timing, MFS did not limit trading activity in 11 domestic large cap
stock, high grade bond and money market funds. MFS' former Chief Executive
Officer, John W. Ballen, and former President, Kevin R. Parke, have also
reached agreement with the SEC (Messrs. Ballen and Parke resigned their
director and officer positions with MFS on February 13, 2004). Under the terms
of the February Settlements, MFS and the executives neither admit nor deny
wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Boards of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with the
NYAG to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH will retain $250,000 and $750,000 will be contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, MFS and the Retail Funds will adopt certain governance changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as
trustees of all MFS funds, and Mr. Ballen resigned his position as President of
all MFS funds, effective February 6, 2004. Messrs. Ballen and Parke will not be
returning to MFS or the MFS funds after their suspensions.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS fund, or
(ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- --------------------------------------------------------------------------------------------------------------
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
JOHN W. BALLEN(2)(5) (born 09/12/59) DAVID H. GUNNING(4) (born 05/30/42)
Trustee and President Trustee
Massachusetts Financial Services Company, Chief Cleveland-Cliffs Inc. (mining products and service
Executive Officer and Director (until February provider), Vice Chairman/Director (since April
2004) 2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
ROBERT J. MANNING(2)(7) (born 10/20/63) Electric Holdings, Inc. (welding equipment
Trustee manufacturer), Director; Southwest Gas Corporation
Massachusetts Financial Services Company, Chief (natural gas distribution company), Director
Executive Officer, President, Chief Investment
Officer and Director WILLIAM R. GUTOW (born 09/27/41)
Trustee
KEVIN R. PARKE(2)(5) (born 12/14/59) Private investor and real estate consultant;
Trustee Capitol Entertainment Management Company (video
Massachusetts Financial Services Company, franchise), Vice Chairman
President, Chief Investment Officer and Director
(until February 2004) AMY B. LANE(4) (born 02/08/53)
Trustee
ROBERT C. POZEN(2)(7) (born 08/08/46) Retired; Merrill Lynch & Co., Inc., Managing
Trustee Director, Investment Banking Group (1997 to
Massachusetts Financial Services Company, Chairman February 2001); Borders Group, Inc. (book and
(since February 2004); Harvard Law School music retailer), Director; Federal Realty
(education), John Olin Visiting Professor (since Investment Trust (real estate investment trust),
July 2002); Secretary of Economic Affairs, The Trustee
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice ABBY M. O'NEILL(3) (born 04/27/28)
Chairman (June 2000 to December 2001); Fidelity Trustee
Management & Research Company (investment Private investor; Rockefeller Financial Services,
adviser), President (March 1997 to July 2001); The Inc. (investment advisers), Chairman and Chief
Bank of New York (financial services), Director; Executive Officer
Bell Canada Enterprises (telecommunications),
Director; Telesat (satellite communications), LAWRENCE T. PERERA (born 06/23/35)
Director Trustee
Hemenway & Barnes (attorneys), Partner
JEFFREY L. SHAMES(2)(6) (born 06/02/55)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Chairman Trustee
(until February 2004)
Private investor; Harvard University Graduate
INDEPENDENT TRUSTEES School of Business Administration, Class of 1961
J. ATWOOD IVES (born 05/01/36) Adjunct Professor in Entrepreneurship Emeritus;
Co-Chair CBL & Associates Properties, Inc. (real estate
Private investor; KeySpan Corporation (energy investment trust), Director
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee J. DALE SHERRATT (born 09/23/38)
and Chief Executive Officer (until November 2000) Trustee
Insight Resources, Inc. (acquisition planning
WARD SMITH (born 09/13/30) specialists), President; Wellfleet Investments
Co-Chair (investor in health care companies), Managing
Private investor General Partner (since 1993); Cambridge
Nutraceuticals (professional nutritional
LAWRENCE H. COHN, M.D. (born 03/11/37) products), Chief Executive Officer (until May
Trustee 2001)
Brigham and Women's Hospital, Chief of Cardiac
Surgery; Harvard Medical School, Professor of ELAINE R. SMITH (born 04/25/46)
Surgery Trustee
Independent health care industry consultant
(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.
(3) Retired December 31, 2003.
(4) Appointed Trustee on January 27, 2004.
(5) Resigned February 6, 2004.
(6) Resigned on February 13, 2004.
(7) Appointed Trustee on February 24, 2004.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN(1) (born 09/12/59) RICHARD M. HISEY (born 08/29/58)
Trustee and President Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Senior
Executive Officer and Director (until February Vice President (since July 2002); The Bank of New
2004) York, Senior Vice President (September 2000 to
July 2002); Lexington Global Asset Managers, Inc.,
JAMES R. BORDEWICK, JR. (born 03/06/59) Executive Vice President and Chief Financial
Assistant Secretary and Assistant Clerk Officer (prior to September 2000); Lexington
Massachusetts Financial Services Company, Senior Funds, Treasurer (prior to September 2000)
Vice President and Associate General Counsel
ROBERT J. MANNING(2) (born 10/20/63)
STEPHEN E. CAVAN (born 11/06/53) President
Secretary and Clerk Massachusetts Financial Services Company, Chief
Massachusetts Financial Services Company, Senior Executive Officer, President, Chief Investment
Vice President, General Counsel and Secretary Officer and Director
STEPHANIE A. DESISTO (born 10/01/53) ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers President
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus JAMES O. YOST (born 06/12/60)
Investment Management, Senior Vice President Assistant Treasurer
(prior to November 2002) Massachusetts Financial Services Company, Senior
Vice President
ROBERT R. FLAHERTY (born 09/18/63)
Assistant Treasurer
Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
(1) Resigned on February 6, 2004.
(2) Appointed President on February 6, 2004.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five
years thereafter to elect Trustees. Each Trustee and officer will hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Mr. Shames has served as a Trustee of the Trust continually since originally appointed until February 13,
2004. Messrs. Ives, Perera and Poorvu, and Ms. Smith, have served in their capacity as Trustee of the Trust
continuously since originally elected or appointed. Mr. Gutow has served as a Trustee of the Trust since
August 1, 2001. Messrs. Cohn, Sherratt and Smith, were elected by shareholders and have served as Trustees of
the Trust since January 1, 2002. Mr. Ballen was elected by shareholders and served as a Trustee from January
1, 2002, until February 6, 2004, and Mr. Parke served as a Trustee of the Trust from January 1, 2002, until
February 6, 2004. Ms. O'Neill retired on December 31, 2003. Mr. Gunning and Ms. Lane have served as Trustees
of the Trust since January 27, 2004, and Messrs. Manning and Pozen have served as Trustees of the Trust since
February 24, 2004.
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 109 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
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGERS
Steven R. Gorham
Lisa B. Nurme
- ------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. The prospectus contains complete information on the fund's
investment objective(s), the risks associated with an investment in the fund,
the fees, charges and expenses involved, as well as other information about
the fund. The prospectus should be read carefully before investing.
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 and procedures 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
EIF-SEM-4/04 431M
MFS(R)Mutual Funds
SEMIANNUAL REPORT 2/29/04
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
The fund seeks as high a level of current income as is considered consistent
with preservation of capital and liquidity.
- --------------------------------------------------------------------------------
To view MFS' statement concerning regulatory issues affecting the mutual fund
industry and the firm, please visit mfs.com.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 7
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 9
- ----------------------------------------------------
FINANCIAL STATEMENTS 11
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 21
- ----------------------------------------------------
TRUSTEES AND OFFICERS 29
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 31
- ----------------------------------------------------
CONTACT INFORMATION 32
- ----------------------------------------------------
ASSET ALLOCATION 33
- -------------------------------------------------------------------------------
LETTER FROM THE CEO
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
As the firm's new Chief Executive Officer, I want to thank you for your
continued trust in MFS and tell you about the series of actions we have taken
since our recent settlements with the regulators. These actions are designed to
enhance the governance structure of the MFS funds, tighten our business
practices, and strengthen the management team at MFS.
In early February, Robert Pozen joined MFS as non-executive Chairman. A seasoned
veteran of the mutual fund industry, Bob has held prior positions as President
of Fidelity Management & Research Company, as Associate General Counsel of the
Securities and Exchange Commission, and as a visiting professor at Harvard Law
School.
In an effort to develop and implement policies that we believe will set a new
standard in regulatory compliance, MFS has hired two new senior executives.
Jeffrey Carp is joining us as General Counsel with responsibility for all of our
legal affairs. Previously he was a senior partner with the law firm of Hale and
Dorr LLP. Also joining MFS in the new position of Executive Vice President of
Regulatory Affairs is Maria Dwyer, who returned to the firm after serving as a
senior executive at Fidelity. At MFS, Maria is in charge of compliance, internal
audit, and fund treasury.
In the area of governance, we have taken steps to enhance the independence of
our funds' boards of trustees to better protect the interests of shareholders.
We have independent board chairs and at least 75% of the trustees are
independent. The trustees will appoint not only their own counsel but also an
independent compliance officer. This officer will assist the boards and their
committees in monitoring the MFS funds' compliance with federal and state
regulations.
In February, MFS reached agreements with federal and state regulators to settle
their administrative proceedings against the firm and two senior executives in
connection with market timing and related issues. Under the terms of the
settlements, we agreed to pay $225 million to compensate affected retail fund
shareholders. The $225 million will be distributed in accordance with a
distribution plan developed by an independent consultant.
We have further agreed with state regulators to reduce management fees on
certain funds we advise by approximately $25 million annually over the next five
years and to pay an administrative fine of $1 million, which will be used for
the purpose of investor education. We have introduced a set of policies designed
to protect the MFS funds and MFS fund shareholders from market timing abuses. By
July, all MFS retail funds, except money market funds, will have a 2% redemption
fee on short-term trades. Our global, international, high-yield, mid- and
small-cap funds will impose the 2% fee on redemptions or exchanges of fund
shares made within 30 calendar days of a share purchase. For all other MFS
funds, except money market funds, the 2% fee will be imposed on redemptions or
exchanges made within 5 business days of a share purchase. See the fund
prospectus for more information.
We continue to use fair value pricing, a strategy that minimizes the potential
for investors to take advantage of "stale" prices. These can occur, as one
example, when funds own foreign securities whose prices close on overseas
exchanges in different time zones. At the same time, we enhanced our monitoring
of excessive trading. We did so by increasing our staff and updating our
computer systems to improve our ability to detect excessive trading in our
funds. Finally, we are supporting industry efforts to establish a "hard" 4 p.m.
close on all trading, which would prevent the possibility of late trading.
In March, MFS reached a second settlement with the SEC under an administrative
proceeding resolving the SEC's investigation into how we disclosed brokerage
allocation practices in connection with fund sales. According to the settlement
order, we did not effectively disclose the potential conflict of interest that
may arise from these arrangements.
Under the terms of the settlement, MFS has agreed to pay one dollar in
disgorgement and $50 million in penalty to MFS fund shareholders. The settlement
noted that MFS had policies in place designed to obtain best execution of all
trades of securities within MFS portfolios.
This past November, MFS eliminated the above mentioned practice of directing
brokerage commissions to certain firms in recognition of fund sales.
Additionally, we announced in March that we would ban the use of soft dollars to
acquire third-party securities research and market data. Soft dollars are
permitted under federal securities laws. In fact, it is a common industry
practice to use a portion of the brokerage commissions to pay for certain
research and execution products and services that are provided to asset
managers. MFS will now pay cash out of its own pocket for third-party research
and market data.
MFS continues to be financially strong, with more than U.S. $140 billion (as of
12/31/03) in assets under management, which continued to be stable during the
first quarter of 2004. We also have the full support of our parent company, Sun
Life Financial, an internationally diversified financial services firm that
manages more than U.S. $269 billion (as of 12/31/03).
We chose to settle these two proceedings with the SEC so we could concentrate on
serving our fund shareholders. As Chief Investment Officer, my focus is on
ensuring that our portfolio teams work closely together and take full advantage
of all the resources available to them to deliver the best possible investment
performance.
As the inventor of the open-end mutual fund in America in 1924, MFS has a strong
tradition and culture of innovation. By strengthening our business and
governance practices, we believe we have an unprecedented opportunity to set a
new standard in the mutual fund industry.
As I look ahead, I do so with confidence. The collaboration among MFS employees,
many of whom have worked at the firm for their entire careers, continues as we
remain singularly dedicated to our clients. It has been our sincere privilege to
serve you, and we thank you for the confidence that you have shown in MFS.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer
MFS Investment Management(R)
March 15, 2004
Note to Shareholders: On February 6, 2004, Jeffrey L. Shames retired as Chairman
of MFS. Robert Pozen was named as non-executive Chairman. Also, on February 6,
2004, Robert J. Manning was appointed Chief Executive Officer, President, and
Chief Investment Officer.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 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 reporting period began with an unsettled market environment characterized
by geopolitical unrest, high jobless claims, mixed economic news and volatile
energy prices. By the end of the six-month period on February 29, 2004,
economic conditions appeared to be improving as jobless claims were down.
However, energy prices still appeared high to us.
In an effort to continue to stabilize prices and stimulate the economy, the
Federal Reserve Board (the Fed) maintained the federal funds overnight
borrowing rate at 1.00% -- a 46-year low. The Fed maintained in February that
it would "...continue to be patient..." before it began to raise rates.
CONTINUED SHORT SUPPLY OF COMMERCIAL PAPER
Despite signs of growing economic strength, the supply of commercial paper
continued to be constrained by cautious corporate spending in our view.
Businesses, taking advantage of low absolute yields, issued longer-term debt in
place of commercial paper.
FUND POSITIONING
As of February 29, 2004, over 88% of MFS Cash Reserves Fund was invested in
commercial paper with the balance of the portfolio invested in U.S. government
discount agency notes and repurchase agreements collateralized by U.S.
government agency discount notes.
During this reporting period, when interest rates were at historical lows and
the Fed continued its accommodative stance, we strategically targeted an
average maturity range for the portfolio of 45 to 55 days.
COMMITMENT TO QUALITY
Regardless of market or economic conditions, we intend to maintain the fund's
high quality as we focus on the fund's objectives of income, capital
preservation, and liquidity.
Respectfully,
/s/ Terri Vittozzi /s/ Edward L. O'Dette
Terri Vittozzi Edward L. O'Dette
Portfolio Manager Portfolio Manager
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any MFS
Fund's current or future investments.
The portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment- related news.
o From Week in Review, link to MFS Global Investment Perspective for our current
view of the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/29/04
- -------------------------------------------------------------------------------
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
CURRENT
CLASS CURRENT 7-DAY YIELD
SHARE INCEPTION TOTAL RETURN, 7-DAY WITHOUT
CLASS DATE 6 MONTHS YIELD(1) WAIVER(1)
A 9/7/93 0.22% 0.41% 0.31%
- --------------------------------------------------------------------------------
B 12/29/86 0.03% 0.02% -0.68%
- --------------------------------------------------------------------------------
C 4/1/96 0.03% 0.05% -0.68%
- --------------------------------------------------------------------------------
529A 7/31/02 0.09% 0.16% -0.29%
- --------------------------------------------------------------------------------
529B 7/31/02 0.03% 0.02% -0.93%
- --------------------------------------------------------------------------------
529C 7/31/02 0.02% 0.02% -0.93%
- --------------------------------------------------------------------------------
(1) Based on the latest seven days ended as of February 29, 2004, 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.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details. All results are historical and
assume the reinvestment of dividends and capital gains.
KEY RISK CONSIDERATIONS
Government guarantees apply to the underlying securities only and not to the
prices and yields of the portfolio.
An investment in the portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
portfolio seeks to preserve the value of your investment at $1.00 per share,
it is possible to lose money by investing in the portfolio.
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 - (unaudited) 2/29/04
- -----------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
Commercial Paper - 88.6%
- -----------------------------------------------------------------------------------------------------
Abbey National PLC, due 3/01/04 $19,205 $19,205,000
- -----------------------------------------------------------------------------------------------------
Archer Daniels Midland Co., due 3/16/04 13,757 13,750,695
- -----------------------------------------------------------------------------------------------------
Bank of America Corp., due 3/15/04 29,775 29,762,263
- -----------------------------------------------------------------------------------------------------
Barclays Bank PLC, due 3/05/04 24,344 24,341,052
- -----------------------------------------------------------------------------------------------------
Barton Capital Corp., due 4/07/04 - 4/19/04 25,780 25,751,212
- -----------------------------------------------------------------------------------------------------
CRC Funding LLC, due 4/06/04 26,098 26,070,858
- -----------------------------------------------------------------------------------------------------
Cafco LLC, due 4/16/04 - 5/28/04 24,811 24,768,984
- -----------------------------------------------------------------------------------------------------
Cargill, Inc., due 5/11/04 25,000 24,948,722
- -----------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, due 3/17/04 6,900 6,896,811
- -----------------------------------------------------------------------------------------------------
Citicorp, due 5/28/04 10,000 9,974,578
- -----------------------------------------------------------------------------------------------------
Citigroup Global Markets, due 3/25/04 5,118 5,114,315
- -----------------------------------------------------------------------------------------------------
Cofco Capital Corp., due 4/01/04 7,500 7,493,154
- -----------------------------------------------------------------------------------------------------
Edison Asset Securitization LLC, due 4/12/04 - 6/01/04 26,000 25,962,165
- -----------------------------------------------------------------------------------------------------
FCAR Owner Trust, due 3/02/04 - 5/04/04 25,840 25,837,654
- -----------------------------------------------------------------------------------------------------
General Electric Capital Corp., due 3/03/04 - 4/06/04 30,400 30,374,410
- -----------------------------------------------------------------------------------------------------
Govco, Inc., due 4/06/04 - 5/25/04 24,823 24,769,382
- -----------------------------------------------------------------------------------------------------
HBOS Treasury Services PLC, due 5/07/04 25,000 24,951,146
- -----------------------------------------------------------------------------------------------------
HSBC America, Inc., due 4/13/04 10,329 10,316,169
- -----------------------------------------------------------------------------------------------------
ING America Insurance Holdings, due 5/27/04 27,347 27,272,320
- -----------------------------------------------------------------------------------------------------
J.P. Morgan & Co., Inc., due 5/06/04 26,314 26,263,828
- -----------------------------------------------------------------------------------------------------
Jupiter Securitization Corp., due 6/30/04 24,856 24,768,279
- -----------------------------------------------------------------------------------------------------
Kittyhawk Funding Corp., due 4/19/04 - 4/27/04 25,400 25,359,721
- -----------------------------------------------------------------------------------------------------
Metlife Funding, Inc., due 3/04/04 - 4/21/04 26,276 26,264,886
- -----------------------------------------------------------------------------------------------------
New Center Asset Trust, due 3/26/04 3,000 2,997,875
- -----------------------------------------------------------------------------------------------------
Old Line Funding Corp., due 4/20/04 5,883 5,874,502
- -----------------------------------------------------------------------------------------------------
Svenska Handelsbanken, Inc., due 5/25/04 22,000 21,945,978
- -----------------------------------------------------------------------------------------------------
Thunder Bay Funding Corp., due 3/08/04 - 4/20/04 24,824 24,803,250
- -----------------------------------------------------------------------------------------------------
Total Commercial Paper, at Amortized Cost and Value $545,839,209
- -----------------------------------------------------------------------------------------------------
U.S. Government Agency Obligations - 11.8%
- -----------------------------------------------------------------------------------------------------
Fannie Mae, due 4/14/04 - 6/09/04 $25,000 $24,940,711
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 6/18/04 - 8/06/04 17,000 16,936,295
- -----------------------------------------------------------------------------------------------------
Freddie Mac, due 4/22/04 30,800 30,749,283
- -----------------------------------------------------------------------------------------------------
Total U.S. Government Agency Obligations, at Amortized
Cost $72,626,289
- -----------------------------------------------------------------------------------------------------
Total Investments, at Amortized Cost and Value $618,465,498
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.4)% (2,518,870)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $615,946,628
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities composing
the total value of your fund.
AT 2/29/04
ASSETS
Investments, at amortized cost and value $618,465,498
- -----------------------------------------------------------------------------------------------------
Cash 263
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 949,105
- -----------------------------------------------------------------------------------------------------
Other assets 1,644
- -----------------------------------------------------------------------------------------------------
Total assets $619,416,510
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $1,972
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 3,135,684
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 22,633
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 35,964
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 16,950
- -----------------------------------------------------------------------------------------------------
Administrative fee 861
- -----------------------------------------------------------------------------------------------------
Program manager fee 42
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 255,776
- -----------------------------------------------------------------------------------------------------
Total liabilities $3,469,882
- -----------------------------------------------------------------------------------------------------
Net assets (represented by paid-in capital) $615,946,628
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 615,946,628
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $89,574,810
- -----------------------------------------------------------------------------------------------------
Shares outstanding 89,574,810
- -----------------------------------------------------------------------------------------------------
Net asset value per share $1.00
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $443,307,908
- -----------------------------------------------------------------------------------------------------
Shares outstanding 443,307,908
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $80,998,517
- -----------------------------------------------------------------------------------------------------
Shares outstanding 80,998,517
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- -----------------------------------------------------------------------------------------------------
Class 529A shares
Net assets $1,116,749
- -----------------------------------------------------------------------------------------------------
Shares outstanding 1,116,749
- -----------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $1.00
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $280,384
- -----------------------------------------------------------------------------------------------------
Shares outstanding 280,384
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $668,260
- -----------------------------------------------------------------------------------------------------
Shares outstanding 668,260
- -----------------------------------------------------------------------------------------------------
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 (unaudited)
- -----------------------------------------------------------------------------------------------------
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 SIX MONTHS ENDED 2/29/04
NET INVESTMENT INCOME
Interest income $4,100,520
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $2,047,943
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 16,419
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 598,299
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 2,680,982
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 497,518
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 1,968
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 1,343
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 3,152
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 1,387
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 334
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 783
- -----------------------------------------------------------------------------------------------------
Administrative fee 18,347
- -----------------------------------------------------------------------------------------------------
Custodian fee 72,370
- -----------------------------------------------------------------------------------------------------
Printing 35,110
- -----------------------------------------------------------------------------------------------------
Postage 48,540
- -----------------------------------------------------------------------------------------------------
Auditing fees 12,069
- -----------------------------------------------------------------------------------------------------
Legal fees 1,628
- -----------------------------------------------------------------------------------------------------
Total expenses $6,038,192
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (1,185)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser and distributor (2,341,310)
- -----------------------------------------------------------------------------------------------------
Net expenses $3,695,697
- -----------------------------------------------------------------------------------------------------
Net investment income $404,823
- -----------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/29/04 8/31/03
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $404,823 $1,788,868
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -------------------------------------------------------------------------------------------------------
Class A $(238,412) $(1,285,090)
- -------------------------------------------------------------------------------------------------------
Class B (137,546) (422,361)
- -------------------------------------------------------------------------------------------------------
Class C (27,598) (79,677)
- -------------------------------------------------------------------------------------------------------
Class 529A (1,045) (1,461)
- -------------------------------------------------------------------------------------------------------
Class 529B (72) (142)
- -------------------------------------------------------------------------------------------------------
Class 529C (150) (137)
- -------------------------------------------------------- --------------- ------------
Total distributions declared to shareholders $(404,823) $(1,788,868)
- -------------------------------------------------------- --------------- ------------
Decrease in net assets from fund share transactions $(407,239,882) $(119,976,920)
- -------------------------------------------------------- --------------- ------------
NET ASSETS
At beginning of period $1,023,186,510 $1,143,163,430
- -------------------------------------------------------------------------------------------------------
At end of period $615,946,628 $1,023,186,510
- -------------------------------------------------------------------------------------------------------
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 semiannual period
and 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) held for the entire period.
SIX MONTHS YEAR ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS A 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
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+++ $0.01 $0.01 $0.05 $0.05 $0.04
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.00)+++ $(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 $1.00
- -------------------------------- -------- ------ ------ ------ ------ ------
Total return (%) 0.22++ 0.69 1.49 4.85 5.39 4.33
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 0.64+ 0.71 0.81 0.80 0.81 0.82
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.43+ 0.70 1.44 4.82 5.18 4.22
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $89,575 $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 $0.00+++ $0.01 $0.01 $0.05 $0.05 $0.04
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.74+ 0.81 0.91 0.90 0.91 0.92
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.33+ 0.60 1.34 4.72 5.08 4.12
- -------------------------------------------------------------------------------------------------------------------------------
+ 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 certain fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS B 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
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+++ $0.04 $0.04 $0.03
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.00)+++ $(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 $1.00
- -------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 0.03++ 0.06 0.49 3.81 4.35 3.29
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.03+ 1.35 1.81 1.80 1.81 1.82
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.05+ 0.06 0.50 3.65 4.18 3.22
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $443,308 $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 certain of the periods indicated. If these fees had been incurred by the fund, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.00)+++ $0.00+++ $0.00+++ $0.04 $0.04 $0.03
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.74+ 1.81 1.91 1.90 1.91 1.92
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.66)+ (0.40) 0.40 3.55 4.08 3.12
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEAR ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS C 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
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+++ $0.04 $0.04 $0.03
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.00)+++ $(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 $1.00
- -------------------------------- -------- ------ ------ ------ ------ ------
Total return (%) 0.03++ 0.06 0.49 3.80 4.32 3.25
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.02+ 1.36 1.81 1.80 1.81 1.82
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.05+ 0.06 0.50 3.77 4.15 3.22
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $80,999 $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 certain of the periods indicated. If these fees had been incurred by the fund, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.00)+++ $0.00+++ $0.01 $0.04 $0.04 $0.03
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.73+ 1.81 1.91 1.90 1.91 1.92
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.66)+ (0.39) 0.40 3.67 4.05 3.12
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
2/29/04 8/31/03 8/31/02*
CLASS 529A (UNAUDITED)
Net asset value, beginning of period $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.00+++ $0.00+++ $0.00+++
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.00)+++ $(0.00)+++ $(0.00)+++
- --------------------------------------------------------------------- ------ ------
Net asset value, end of period $1.00 $1.00 $1.00
- --------------------------------------------------------------------- ------ ------
Total return (%) 0.09++ 0.45 0.08++
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 0.91+ 0.96 1.16+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.19+ 0.33 1.04+
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,117 $1,164 $30
- ---------------------------------------------------------------------------------------------------------------------------
(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 certain of the periods indicated. If these fees had been incurred by the fund, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.00)+++ $0.00 $0.00+++
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.36+ 1.41 1.26+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.26)+ (0.12) 0.94+
- ---------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529 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
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
2/29/04 8/31/03 8/31/02*
CLASS 529B (UNAUDITED)
Net asset value, beginning of period $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.00+++ $0.00+++ $0.00+++
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.00)+++ $(0.00)+++ $(0.00)+++
- -------------------------------------------------------- ---------- ------ ------
Net asset value, end of period $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ------ ------
Total return (%) 0.03++ 0.07 0.01++
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.04+ 1.25 2.06+
- -----------------------------------------------------------------------------------------------------------------
Net investment income 0.05+ 0.06 0.23+
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $280 $253 $5
- -----------------------------------------------------------------------------------------------------------------
(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 certain of the periods indicated. If these fees had been incurred by the fund, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.00)+++ $(0.01) $0.00+++
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.00+ 2.06 2.16+
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.91)+ (0.75) 0.13+
- -----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529 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
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
2/29/04 8/31/03 8/31/02*
CLASS 529C (UNAUDITED)
Net asset value, beginning of period $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.00+++ $0.00+++ $0.00+++
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.00)+++ $(0.00)+++ $(0.00)+++
- ---------------------------------------------------------- -------- ------ ------
Net asset value, end of period $1.00 $1.00 $1.00
- ---------------------------------------------------------- -------- ------ ------
Total return (%) 0.02++ 0.07 0.01++
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.05+ 1.22 2.06+
- -----------------------------------------------------------------------------------------------------------------
Net investment income 0.05+ 0.05 0.23+
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $668 $512 $5
- -----------------------------------------------------------------------------------------------------------------
(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 certain of the periods indicated. If these fees had been incurred by the fund, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.00)+++ $(0.01) $0.00+++
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.01+ 2.06 2.16+
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.91)+ (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 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 (unaudited)
- -------------------------------------------------------------------------------
(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.
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 for the six months ended February 29, 2004, 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 tax-exempt
and taxable net 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 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 six months ended February 29, 2004 were 0.45% of average
daily net assets on an annualized basis.
As part of the settlement agreement with the New York Attorney General
concerning market timing and related matters, MFS has agreed to reduce the
fund's management fee to 0.15% of average daily net assets for the period March
1, 2004 through February 28, 2009. During this time period, the Board of
Trustees will continue to review the appropriateness of all advisory fees in
accordance with their oversight responsibilities. After February 28, 2009 the
management fee will be determined in accordance with then existing review
policies approved by the Board of Trustees overseeing the fund.
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 retired Trustees. Included in Trustees'
compensation is a pension expense of $2,107 for retired trustees for the six
months ended February 29, 2004.
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 up
to the following annual percentage rates 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 - 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 a 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 six months ended February 29, 2004 amounted to:
CLASS A CLASS B CLASS C CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD -- $5,184 $4,822 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February 29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS 529A CLASS 529B CLASS 529C
Total Distribution Plan -- 0.39% 0.39% -- 0.14% 0.14%
- ----------------------------------------------------------------------------------------------------------------------
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 six months ended February 29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred
Sales Charges Imposed $188,680 $1,399,249 $62,165 $-- $--
- --------------------------------------------------------------------------------
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 - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, 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%, which amounted to $408,922 for the
year six months ended February 29, 2004. Also included in shareholder servicing
costs are out-of-pocket expenses, paid to MFSC, which amounted to $104,714 for
the six months ended February 29, 2004, as well as other expenses paid to
unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$4,371,504,414 and $4,728,906,535, 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
each fund were as follows:
Six months ended Year ended
2/29/04 8/31/03
SHARES AND DOLLARS SHARES AND DOLLARS
CLASS A SHARES
Shares sold 133,061,138 3,685,903,013
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 205,046 1,006,107
- --------------------------------------------------------------------------------------------------
Shares reacquired (257,965,950) (3,714,864,724)
- --------------------------------------------------------------------------------------------------
Net decrease (124,699,766) (27,955,604)
- --------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 134,168,734 678,419,939
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 141,844 389,411
- --------------------------------------------------------------------------------------------------
Shares reacquired (338,271,221) (773,179,025)
- --------------------------------------------------------------------------------------------------
Net decrease (203,960,643) (94,369,675)
- --------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 82,645,999 397,526,433
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 26,026 70,913
- --------------------------------------------------------------------------------------------------
Shares reacquired (161,388,152) (397,137,070)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) (78,716,127) 460,276
- --------------------------------------------------------------------------------------------------
CLASS 529A SHARES
Shares sold 225,076 1,303,649
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 1,011 1,459
- --------------------------------------------------------------------------------------------------
Shares reacquired (272,856) (171,703)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) (46,769) 1,133,405
- --------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 162,061 668,022
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 69 139
- --------------------------------------------------------------------------------------------------
Shares reacquired (134,571) (420,678)
- --------------------------------------------------------------------------------------------------
Net increase 27,559 247,483
- --------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 257,995 576,424
- --------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 145 133
- --------------------------------------------------------------------------------------------------
Shares reacquired (102,276) (69,362)
- --------------------------------------------------------------------------------------------------
Net increase 155,864 507,195
- --------------------------------------------------------------------------------------------------
(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 plus 0.50%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the fund for the six months ended February 29, 2004 was $3,200. The fund had no
borrowings during the period.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding regarding
disclosure of brokerage allocation practices in connection with fund sales.
Under the terms of the settlement, in which MFS neither admitted nor denied any
wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement and $50
million in penalty to certain MFS funds, pursuant to a plan to be approved by
an independent distribution consultant. The agreement with the SEC is reflected
in an order of the SEC. The settlement order states that MFS failed to
adequately disclose to the Boards of Trustees and to shareholders of the MFS
funds the specifics of its preferred arrangements with certain brokerage firms
selling MFS fund shares. The settlement order states that MFS had in place
policies designed to obtain best execution of all fund trades.
As part of the settlement, MFS also agreed to retain an independent compliance
consultant to review the completeness of its disclosure to fund trustees and to
fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial advisers who support the sale of fund
shares. The brokerage allocation practices which were the subject of this
proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the Securities and
Exchange Commission ("SEC"), the New York Attorney General ("NYAG") and the
Bureau of Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in certain
MFS fund prospectuses regarding market timing and related matters (the
"February Settlements"). These regulators alleged that prospectus language for
certain MFS funds was false and misleading because, although the prospectuses
for those funds in the regulators' view indicated that the funds prohibited
market timing, MFS did not limit trading activity in 11 domestic large cap
stock, high grade bond and money market funds. MFS' former Chief Executive
Officer, John W. Ballen, and former President, Kevin R. Parke, have also
reached agreement with the SEC (Messrs. Ballen and Parke resigned their
director and officer positions with MFS on February 13, 2004). Under the terms
of the February Settlements, MFS and the executives neither admit nor deny
wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Boards of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with the
NYAG to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH will retain $250,000 and $750,000 will be contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, MFS and the Retail Funds will adopt certain governance changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as
trustees of all MFS funds, and Mr. Ballen resigned his position as President of
all MFS funds, effective February 6, 2004. Messrs. Ballen and Parke will not be
returning to MFS or the MFS funds after their suspensions.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS fund, or
(ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- -------------------------------------------------------------------------------------------------------------
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
JOHN W. BALLEN(2)(5) (born 09/12/59)
Trustee and President DAVID H. GUNNING(4) (born 05/30/42)
Massachusetts Financial Services Company, Chief Trustee
Executive Officer and Director (until February Cleveland-Cliffs Inc. (mining products and service
2004) provider), Vice Chairman/Director (since April
2001); Encinitos Ventures (private investment
ROBERT J. MANNING(2)(7) (born 10/20/63) company), Principal (1997 to April 2001); Lincoln
Trustee Electric Holdings, Inc. (welding equipment
Massachusetts Financial Services Company, Chief manufacturer), Director; Southwest Gas Corporation
Executive Officer, President, Chief Investment (natural gas distribution company), Director
Officer and Director
WILLIAM R. GUTOW (born 09/27/41)
KEVIN R. PARKE(2)(5) (born 12/14/59) Trustee
Trustee Private investor and real estate consultant;
Massachusetts Financial Services Company, Capitol Entertainment Management Company (video
President, Chief Investment Officer and Director franchise), Vice Chairman
(until February 2004)
AMY B. LANE(4) (born 02/08/53)
ROBERT C. POZEN(2)(7) (born 08/08/46) Trustee
Trustee Retired; Merrill Lynch & Co., Inc., Managing
Massachusetts Financial Services Company, Chairman Director, Investment Banking Group (1997 to
(since February 2004); Harvard Law School February 2001); Borders Group, Inc. (book and
(education), John Olin Visiting Professor (since music retailer), Director; Federal Realty
July 2002); Secretary of Economic Affairs, The Investment Trust (real estate investment trust),
Commonwealth of Massachusetts (January 2002 to Trustee
December 2002); Fidelity Investments, Vice
Chairman (June 2000 to December 2001); Fidelity ABBY M. O'NEILL(3) (born 04/27/28)
Management & Research Company (investment Trustee
adviser), President (March 1997 to July 2001); The Private investor; Rockefeller Financial Services,
Bank of New York (financial services), Director; Inc. (investment advisers), Chairman and Chief
Bell Canada Enterprises (telecommunications), Executive Officer
Director; Telesat (satellite communications),
Director LAWRENCE T. PERERA (born 06/23/35)
Trustee
JEFFREY L. SHAMES(2)(6) (born 06/02/55) Hemenway & Barnes (attorneys), Partner
Trustee
Massachusetts Financial Services Company, WILLIAM J. POORVU (born 04/10/35)
Chairman (until February 2004) Trustee
Private investor; Harvard University Graduate
INDEPENDENT TRUSTEES School of Business Administration, Class of 1961
J. ATWOOD IVES (born 05/01/36) Adjunct Professor in Entrepreneurship Emeritus;
Co-Chair CBL & Associates Properties, Inc. (real estate
Private investor; KeySpan Corporation (energy investment trust), Director
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee J. DALE SHERRATT (born 09/23/38)
and Chief Executive Officer (until November 2000) Trustee
Insight Resources, Inc. (acquisition planning
WARD SMITH (born 09/13/30) specialists), President; Wellfleet Investments
Co-Chair (investor in health care companies), Managing
Private investor General Partner (since 1993); Cambridge
Nutraceuticals (professional nutritional
LAWRENCE H. COHN, M.D. (born 03/11/37) products), Chief Executive Officer (until May
Trustee 2001)
Brigham and Women's Hospital, Chief of Cardiac
Surgery; Harvard Medical School, Professor of ELAINE R. SMITH (born 04/25/46)
Surgery Trustee
Independent health care industry consultant
(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.
(3) Retired December 31, 2003.
(4) Appointed Trustee on January 27, 2004.
(5) Resigned February 6, 2004.
(6) Resigned on February 13, 2004.
(7) Appointed Trustee on February 24, 2004.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN(1) (born 09/12/59) RICHARD M. HISEY (born 08/29/58)
Trustee and President Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Senior
Executive Officer and Director (until February Vice President (since July 2002); The Bank of New
2004) York, Senior Vice President (September 2000 to
July 2002); Lexington Global Asset Managers, Inc.,
JAMES R. BORDEWICK, JR. (born 03/06/59) Executive Vice President and Chief Financial
Assistant Secretary and Assistant Clerk Officer (prior to September 2000); Lexington
Massachusetts Financial Services Company, Senior Funds, Treasurer (prior to September 2000)
Vice President and Associate General Counsel
ROBERT J. MANNING(2) (born 10/20/63)
STEPHEN E. CAVAN (born 11/06/53) President
Secretary and Clerk Massachusetts Financial Services Company, Chief
Massachusetts Financial Services Company, Senior Executive Officer, President, Chief Investment
Vice President, General Counsel and Secretary Officer and Director
STEPHANIE A. DESISTO (born 10/01/53) ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers President
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus JAMES O. YOST (born 06/12/60)
Investment Management, Senior Vice President Assistant Treasurer
(prior to November 2002) Massachusetts Financial Services Company, Senior
Vice President
ROBERT R. FLAHERTY (born 09/18/63)
Assistant Treasurer
Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
(1) Resigned on February 6, 2004.
(2) Appointed President on February 6, 2004.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five
years thereafter to elect Trustees. Each Trustee and officer will hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Mr. Shames has served as a Trustee of the Trust continually since originally appointed until February 13,
2004. Messrs. Cohn, Sherratt and Smith, have served in their capacity as Trustee of the Trust continuously
since originally elected or appointed. Messrs. 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. Ballen was elected by
shareholders and served as a Trustee of the Trust from January 1, 2002 until February 6, 2004, and Mr. Parke
served as a Trustee of the Trust from January 1, 2002, until February 6, 2004. Ms. O'Neill retired on December
31, 2003. Mr. Gunning and Ms. Lane have served as Trustees of the Trust since January 27, 2004, and Messrs.
Manning and Pozen have served as Trustees since February 24, 2004.
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 109 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 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR JP Morgan Chase Bank
MFS Fund Distributors, Inc. One Chase Manhattan Plaza
500 Boylston Street, Boston, MA New York, NY 10081
02116-3741
PORTFOLIO MANAGERS
Edward L. O'Dette
Terri A. Vittozzi
- -------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. The prospectus contains complete information on the fund's
investment objective(s), the risks associated with an investment in the fund,
the fees, charges and expenses involved, as well as other information about
the fund. The prospectus should be read carefully before investing.
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 and procedures 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 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
LMM-SEM-4/04 83M
MFS(R) Mutual Funds
SEMIANNUAL REPORT 2/29/04
MFS(R) JAPAN EQUITY FUND
----------------------------
[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) JAPAN EQUITY FUND
The fund seeks capital appreciation.
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------
MFS PRIVACY POLICY
- ------------------------------------------------
PERFORMANCE SUMMARY 1
- ------------------------------------------------
PORTFOLIO OF INVESTMENTS 3
- ------------------------------------------------
FINANCIAL STATEMENTS 5
- ------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 10
- ------------------------------------------------
TRUSTEES AND OFFICERS 15
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/29/04
- -------------------------------------------------------------------------------
Currently, the fund offers Class A and 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.
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Performance results include the deduction of the
maximum sales charge and reflect the percentage change in the net asset value,
including the reinvestment of any dividends and capital gains distributions.
(See Notes to Performance Summary.)
CALL 1-800-343-2829 EXT. 35941 FOR THE MOST RECENT MONTH-END PERFORMANCE
RESULTS. MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE,
AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA
QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
MFS JAPAN EQUITY FUND
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 6-mo 1-yr 3-yr Life*
- ------------------------------------------------------------------------------
A 6/1/2000 -- 46.49% 7.10% -2.83%
- ------------------------------------------------------------------------------
I 7/31/2002 -- 46.42% 7.14% -2.80%
- ------------------------------------------------------------------------------
Comparative benchmarks
- --------------------
Average annual
- --------------------
- ------------------------------------------------------------------------------
Average Japanese equity fund+ 14.59% 42.83% -3.20% -11.19%
- ------------------------------------------------------------------------------
Tokyo Price Index# 15.89% 44.70% -1.21% -8.24%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
- -------------------
Average annual
with sales charge**
- -------------------
- ------------------------------------------------------------------------------
A -- 38.07% 5.01% -4.36%
- ------------------------------------------------------------------------------
I class shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
- -------------------
Cumulative
without sales charge
- -------------------
Share class 6-mo 1-yr 3-yr Life*
- ------------------------------------------------------------------------------
A 13.67% 46.49% 22.85% -10.20%
- ------------------------------------------------------------------------------
I 13.80% 46.42% 22.98% -10.10%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
June 1, 2000, through February 29, 2004. Index information is from June 1,
2000.
** Takes into account the maximum sales charge of 5.75%.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
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 such subsidies and waivers the fund's
performance would be less favorable. Please see the prospectus and financial
statements for complete details.
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.
- -------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (unaudited) - 2/29/04
- -------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------
Japan - 98.6%
- -------------------------------------------------------------------------------------------------
Automotive - 9.6%
- -------------------------------------------------------------------------------------------------
Bridgestone Corp. 7,000 $103,364
- -------------------------------------------------------------------------------------------------
Exedy Corp. 2,600 34,251
- -------------------------------------------------------------------------------------------------
Honda Motor Co. Ltd. 4,900 213,521
- -------------------------------------------------------------------------------------------------
Musashi Seimitsu Industry Co. Ltd. 2,200 63,643
- -------------------------------------------------------------------------------------------------
Nissin Kogyo Co. Ltd. 2,800 62,801
- -------------------------------------------------------------------------------------------------
$477,580
- -------------------------------------------------------------------------------------------------
Banks & Credit Companies - 10.8%
- -------------------------------------------------------------------------------------------------
AEON Credit Service Co. Ltd. 1,300 $72,596
- -------------------------------------------------------------------------------------------------
Aiful Corp. 1,450 127,963
- -------------------------------------------------------------------------------------------------
Chiba Bank Ltd. 24,000 96,452
- -------------------------------------------------------------------------------------------------
Jaccs Co. Ltd. 21,000 97,084
- -------------------------------------------------------------------------------------------------
Takefuji Corp. 1,980 141,746
- -------------------------------------------------------------------------------------------------
$535,841
- -------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.3%
- -------------------------------------------------------------------------------------------------
Tokyo Broadcasting System, Inc. 7,000 $113,489
- -------------------------------------------------------------------------------------------------
Business Services - 3.7%
- -------------------------------------------------------------------------------------------------
SOFTBANK CORP. 5,000 $184,922
- -------------------------------------------------------------------------------------------------
Construction - 2.9%
- -------------------------------------------------------------------------------------------------
Sekisui Chemical Co. Ltd. 28,000 $144,569
- -------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.7%
- -------------------------------------------------------------------------------------------------
Impact 21 Co. Ltd. 1,300 $30,704
- -------------------------------------------------------------------------------------------------
Unicharm 1,100 51,458
- -------------------------------------------------------------------------------------------------
$82,162
- -------------------------------------------------------------------------------------------------
Electrical Equipment - 3.8%
- -------------------------------------------------------------------------------------------------
Fujikura Ltd. 33,000 $160,415
- -------------------------------------------------------------------------------------------------
Oki Electric Industry Co. Ltd. 6,000 26,695
- -------------------------------------------------------------------------------------------------
$187,110
- -------------------------------------------------------------------------------------------------
Electronics - 21.7%
- -------------------------------------------------------------------------------------------------
Alps Electric Co. Ltd. 7,000 $91,445
- -------------------------------------------------------------------------------------------------
Brother Industries Ltd. 19,000 179,155
- -------------------------------------------------------------------------------------------------
Citizen Electronics Co. Ltd. 2,200 177,232
- -------------------------------------------------------------------------------------------------
Funai Electric Co. 400 56,136
- -------------------------------------------------------------------------------------------------
Konica Minolta Holdings, Inc. 8,500 97,579
- -------------------------------------------------------------------------------------------------
Nippon Electric Glass Co. Ltd. 9,000 182,908
- -------------------------------------------------------------------------------------------------
Seiko Epson Corp. 4,400 154,676
- -------------------------------------------------------------------------------------------------
Stanley Electric Co. Ltd. 8,200 139,626
- -------------------------------------------------------------------------------------------------
$1,078,757
- -------------------------------------------------------------------------------------------------
Energy - Independent - 1.0%
- -------------------------------------------------------------------------------------------------
Nippon Oil Corp. 10,000 $52,273
- -------------------------------------------------------------------------------------------------
Entertainment - 3.3%
- -------------------------------------------------------------------------------------------------
ROUND ONE Corp. 89 $162,137
- -------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 3.2%
- -------------------------------------------------------------------------------------------------
Asahi Soft Drinks Co. Ltd. 8,000 $51,925
- -------------------------------------------------------------------------------------------------
Kibun Food Chemifa Co. Ltd. 9,000 107,603
- -------------------------------------------------------------------------------------------------
$159,528
- -------------------------------------------------------------------------------------------------
Furniture & Appliances - 1.9%
- -------------------------------------------------------------------------------------------------
Pentax Corp. 18,000 $92,443
- -------------------------------------------------------------------------------------------------
Leisure & Toys - 6.8%
- -------------------------------------------------------------------------------------------------
Heiwa Real Estate Co. Ltd. 4,500 $62,617
- -------------------------------------------------------------------------------------------------
Tamron Co. Ltd. 3,000 126,059
- -------------------------------------------------------------------------------------------------
Yamaha Corp. 8,000 148,304
- -------------------------------------------------------------------------------------------------
$336,980
- -------------------------------------------------------------------------------------------------
Medical Equipment - 0.4%
- -------------------------------------------------------------------------------------------------
Olympus Corp. 1,000 $20,827
- -------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 4.2%
- -------------------------------------------------------------------------------------------------
Tokyo Gas Co. Ltd. 56,000 $208,138
- -------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.9%
- -------------------------------------------------------------------------------------------------
Canon, Inc. 3,000 $146,382
- -------------------------------------------------------------------------------------------------
Pharmaceuticals - 3.1%
- -------------------------------------------------------------------------------------------------
Chugai Pharmaceutical Co. Ltd. 7,200 $106,186
- -------------------------------------------------------------------------------------------------
Tanabe Seiyaku Co. 6,000 50,313
- -------------------------------------------------------------------------------------------------
$156,499
- -------------------------------------------------------------------------------------------------
Real Estate - 1.1%
- -------------------------------------------------------------------------------------------------
HUNET, Inc. 25,000 $56,301
- -------------------------------------------------------------------------------------------------
Special Products & Services - 1.5%
- -------------------------------------------------------------------------------------------------
Fujikura Kasei Co. Ltd. 11,000 $74,518
- -------------------------------------------------------------------------------------------------
Specialty Chemicals - 4.7%
- -------------------------------------------------------------------------------------------------
Central Glass Co. Ltd. 9,000 $58,498
- -------------------------------------------------------------------------------------------------
Sumitomo Bakelite Co. Ltd. 30,000 176,042
- -------------------------------------------------------------------------------------------------
$234,540
- -------------------------------------------------------------------------------------------------
Specialty Stores - 3.7%
- -------------------------------------------------------------------------------------------------
Lawson, Inc. 2,900 $100,352
- -------------------------------------------------------------------------------------------------
Nishimatsuya Chain Co. Ltd. 3,240 84,237
- -------------------------------------------------------------------------------------------------
$184,589
- -------------------------------------------------------------------------------------------------
Telephone Services - 4.3%
- -------------------------------------------------------------------------------------------------
KDDI Corp. 41 $212,816
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $3,988,480) $4,902,401
- -------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.3%
- -------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -------------------------------------------------------------------------------------------------
Abbey National PLC, due 3/01/04, at Amortized Cost $66 $66,000
- -------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $4,054,480) $4,968,401
- -------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.1% 5,974
- -------------------------------------------------------------------------------------------------
Net Assets - 100.0% $4,974,375
- -------------------------------------------------------------------------------------------------
* Non-income producing security
See portfolio footnotes and notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities composing
the total value of your fund.
AT 2/29/04
ASSETS
Investments, at value (identified cost, $4,054,480) $4,968,401
- -----------------------------------------------------------------------------------------------------
Cash 231
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 140,655
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 4,242
- -----------------------------------------------------------------------------------------------------
Total assets $5,113,529
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $138,657
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 397
- -----------------------------------------------------------------------------------------------------
Reimbursement fee 100
- -----------------------------------------------------------------------------------------------------
Total liabilities $139,154
- -----------------------------------------------------------------------------------------------------
Net assets $4,974,375
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $5,350,333
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of assets
and liabilities in foreign currencies 913,838
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (1,276,883)
- -----------------------------------------------------------------------------------------------------
Accumulated net investment loss (12,913)
- -----------------------------------------------------------------------------------------------------
Total $4,974,375
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding
- -----------------------------------------------------------------------------------------------------
Class A 515,899
- -----------------------------------------------------------------------------------------------------
Class I 37,710
- -----------------------------------------------------------------------------------------------------
Total shares of beneficial interest outstanding 553,609
- -----------------------------------------------------------------------------------------------------
Net assets
- -----------------------------------------------------------------------------------------------------
Class A $4,635,263
- -----------------------------------------------------------------------------------------------------
Class I 339,112
- -----------------------------------------------------------------------------------------------------
Total net assets $4,974,375
- -----------------------------------------------------------------------------------------------------
Class A shares
- -----------------------------------------------------------------------------------------------------
Net asset value per share (net assets / shares of beneficial
interest outstanding) $8.98
- -----------------------------------------------------------------------------------------------------
Offering price per share (100 / 94.25 X $8.98) $9.53
- -----------------------------------------------------------------------------------------------------
Class I shares
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $8.99
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred
sales charge may be imposed on redemptions of Class A shares.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- -----------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED 2/29/04
NET INVESTMENT INCOME (LOSS)
Income
- -----------------------------------------------------------------------------------------------------
Dividends $18,557
- -----------------------------------------------------------------------------------------------------
Interest 404
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (1,716)
- -----------------------------------------------------------------------------------------------------
Total investment income $17,245
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $24,127
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 2,716
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 8,027
- -----------------------------------------------------------------------------------------------------
Administrative fee 146
- -----------------------------------------------------------------------------------------------------
Custodian fee 9,506
- -----------------------------------------------------------------------------------------------------
Printing 8,634
- -----------------------------------------------------------------------------------------------------
Postage 56
- -----------------------------------------------------------------------------------------------------
Auditing fees 19,269
- -----------------------------------------------------------------------------------------------------
Miscellaneous 4,120
- -----------------------------------------------------------------------------------------------------
Total expenses $76,601
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (22)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (46,421)
- -----------------------------------------------------------------------------------------------------
Net expenses $30,158
- -----------------------------------------------------------------------------------------------------
Net investment loss $(12,913)
- -----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $561,654
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions 245
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions $561,899
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $36,325
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (117)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency translation $36,208
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency $598,107
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $585,194
- -----------------------------------------------------------------------------------------------------
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, and
any shareholder transactions.
SIX MONTHS
ENDED YEAR ENDED
2/29/04 8/31/03
(UNAUDITED)
INCREASE IN NET ASSETS
OPERATIONS
Net investment loss $(12,913) $(10,310)
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions 561,899 (17,774)
- --------------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation 36,208 630,941
- ------------------------------------------------------------------- --------- --------
Increase in net assets from operations $585,194 $602,857
- ------------------------------------------------------------------- --------- --------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
Net increase in net assets from fund share transactions $183,062 $38,078
- ------------------------------------------------------------------- --------- --------
Total increase in net assets $768,256 $640,935
- ------------------------------------------------------------------- --------- --------
NET ASSETS
At beginning of period $4,206,119 $3,565,184
- --------------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment loss of
$12,913 and $0, respectively) $4,974,375 $4,206,119
- --------------------------------------------------------------------------------------------------------
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 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).
YEAR ENDED 8/31
SIX MONTHS ENDED ---------------------------------------- PERIOD ENDED
CLASS A 2/29/04 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning of period $7.90 $6.77 $6.72 $9.68 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.02) $(0.02) $(0.04) $(0.05) $(0.02)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 1.10 1.15 0.09 (2.91) (0.30)
- ------------------------------------------- -------- ------ ------ ------ ------
Total from investment operations $1.08 $1.13 $0.05 $(2.96) $(0.32)
- ------------------------------------------- -------- ------ ------ ------ ------
Net asset value, end of period $8.98 $7.90 $6.77 $6.72 $9.68
- ------------------------------------------- -------- ------ ------ ------ ------
Total return (%)(+) 13.67++ 16.69 0.74 (30.58) (3.20)++
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses## 1.24+ 1.25 1.25 1.27 1.42+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.53)+ (0.30) (0.61) (0.57) (0.77)+
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 54 111 118 117 21
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $4,635 $4,063 $3,435 $3,411 $4,876
- ---------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are
defined as the fund's operating expenses, exclusive of management, distribution and service fees, such that Other
Expenses do not exceed 0.25% annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses
during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.25% of average
daily net assets for Class A. 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. This agreement will terminate on the earlier of December
31, 2004 or such date as all expenses previously borne by MFS under the agreement have been paid by the fund. In
addition, the distributor contractually waived its fee for the periods indicated. 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 $(0.11) $(0.14) $(0.17) $(0.15) $(0.07)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 3.17+ 3.19 3.22 2.52 3.65+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (2.46)+ (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
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
CLASS I 2/29/04 8/31/03 8/31/02**
(UNAUDITED)
Net asset value, beginning of period $7.90 $6.77 $6.75
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.03) $(0.02) $(0.00)+++
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.06 1.15 0.02
- -------------------------------------------------------------- ------ ------ ------
Total from investment operations $1.09 $1.13 $0.02
- -------------------------------------------------------------- ------ ------ ------
Net asset value, end of period $8.99 $7.90 $6.77
- -------------------------------------------------------------- ------ ------ ------
Total return (%) 13.80++ 16.69 0.30++
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses## 1.25+ 1.25 1.25++
- ---------------------------------------------------------------------------------------------------------------------
Net investment loss (0.61)+ (0.24) (1.26)+
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 54 111 118
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $339 $143 $131
- ---------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are
defined as the fund's operating expenses, exclusive of management fees, such that Other Expenses do not exceed 0.25%
annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses during the fund's fiscal year
and the fund paying MFS an expense reimbursement fee not greater than 0.25% of average daily net assets for Class I. 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. This agreement will terminate on the earlier of December 31, 2004 or such date as all
expenses previously borne by MFS under the agreement have been paid by the fund. 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 $(0.10) $(0.12) $(0.00)+++
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.83+ 2.84 2.87+
- ---------------------------------------------------------------------------------------------------------------------
Net investment loss (2.19)+ (1.83) (2.88)+
- ---------------------------------------------------------------------------------------------------------------------
** For the period from the inception of Class I 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 expense reductions from certain expense offset arrangements.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(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. 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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market prices where current market
prices are readily available, or the fund may fair value portfolio securities
under the direction of the Board of Trustees when a determination is made that
current market prices are not readily available. Equity securities in the
fund's portfolio for which market quotations are available are valued at the
last sale or official closing price as reported by an independent pricing
service 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. Equity securities traded over the counter are valued at the
last sales price traded each day as reported by an independent pricing service,
or to the extent there are no sales reported, such securities are valued on the
basis of quotations obtained from brokers and dealers. Equity securities for
which it is determined that current market prices are not readily available
will be fair valued under the direction of the Board of Trustees. The fund may
also fair value foreign equity securities in cases where closing market prices
are not readily available or are deemed not reflective of readily available
market prices. For example, significant events (such as movement in the U.S.
securities market, or other regional and local developments) may occur between
the time that foreign markets close (where the security is principally traded)
and the time that the fund calculates its net asset value (generally, the close
of the NYSE) that may impact the value of securities traded in these foreign
markets. In these cases, the fund may utilize information from an external
vendor or other sources to adjust closing market prices of foreign equity
securities to reflect what it believes to be the fair value of the securities
as of the fund's valuation time. Because the frequency of significant events is
not predictable, fair valuation of foreign equity securities may occur on a
frequent basis. Short-term obligations with a remaining maturity in excess of
60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the fund's portfolio are valued at amortized cost, which
constitutes market value as determined by the Board of Trustees. 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.
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 - 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 accounting principles generally accepted in the United States
of America. 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, for the six months ended February 29, 2004, 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, and, capital losses.
The fund paid no distributions for the years ended August 31, 2003 and August
31, 2002.
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.
MFS has contractually agreed, subject to reimbursement, to bear a portion of
the fund's "Other Expenses", which are defined as the fund's operating
expenses, exclusive of management, distribution and service,
and certain other fees and expenses, such that Other Expenses do not exceed
0.25% annually. This arrangement is effected by MFS bearing all of the fund's
Other Expenses during the fund's fiscal year and the fund paying MFS an
expense reimbursement fee not greater than 0.25% of average daily net assets
for Class A, and Class I. To the extent that the expense reimbursement fee
exceeds the fund's actual expenses, the excess will be applied to unreimbursed
amounts paid by MFS under the current agreement. This agreement will terminate
on the earlier of December 31, 2004 or such date as all expenses previously
borne by MFS under the agreement have been paid by the fund. At February 29,
2004 aggregate unreimbursed expenses amounted to $92,941.
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 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
up to the following annual percentage rates 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 Class A shares for the fund for the six months
ended February 29, 2004.
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:
Distribution Fee 0.10%
------------------------------------------------------
Service Fee 0.25%
------------------------------------------------------
Total Distribution Plan 0.35%
------------------------------------------------------
The fund's payment of the 0.10% per annum Class A distribution fee and the
0.25% per annum Class A service fee are currently being waived and will be
implemented on such a date as the Trustees of the fund may determine.
Certain Class A 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. MFD receives all contingent deferred sales charges.
There were no contingent deferred sales charges imposed on Class A during the
six months ended February 29, 2004.
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, 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%, which amounted to
$2,654 for the six months ended February 29, 2004. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $62 for the six months ended February 29, 2004, as well as other
expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$2,852,982 and $2,568,669, 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 $4,079,342
------------------------------------------------------
Gross unrealized appreciation $962,296
------------------------------------------------------
Gross unrealized depreciation (73,237)
------------------------------------------------------
Net unrealized appreciation $889,059
------------------------------------------------------
(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:
Six months ended 2/29/04 Year ended 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 13,993 $124,612 7,249 $44,597
- --------------------------------------------------------------------------------
Shares reacquired (12,559) (112,582) (431) (2,745)
- --------------------------------------------------------------------------------
Net increase 1,434 $12,030 6,818 $41,852
- --------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 34,706 $307,938 62,702 $414,034
- --------------------------------------------------------------------------------
Shares reacquired (15,146) (136,906) (63,841) (417,808)
- --------------------------------------------------------------------------------
Net increase (decrease) 19,560 $171,032 (1,139) $(3,774)
- --------------------------------------------------------------------------------
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the six months ended February 29, 2004 was $18. The
fund had no borrowings during the period.
(7) FINANCIAL INSTRUMENTS
The fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include 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.
(8) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding regarding
disclosure of brokerage allocation practices in connection with fund sales.
Under the terms of the settlement, in which MFS neither admitted nor denied
any wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement and $50
million in penalty to certain MFS funds, pursuant to a plan to be approved by
an independent distribution consultant. The agreement with the SEC is
reflected in an order of the SEC. The settlement order states that MFS failed
to adequately disclose to the Boards of Trustees and to shareholders of the
MFS funds the specifics of its preferred arrangements with certain brokerage
firms selling MFS fund shares. The settlement order states that MFS had in
place policies designed to obtain best execution of all fund trades.
As part of the settlement, MFS also agreed to retain an independent compliance
consultant to review the completeness of its disclosure to fund trustees and
to fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial advisers who support the sale of fund
shares. The brokerage allocation practices which were the subject of this
proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the Securities and
Exchange Commission ("SEC"), the New York Attorney General ("NYAG") and the
Bureau of Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in
certain MFS fund prospectuses regarding market timing and related matters (the
"February Settlements"). These regulators alleged that prospectus language for
certain MFS funds was false and misleading because, although the prospectuses
for those funds in the regulators' view indicated that the funds prohibited
market timing, MFS did not limit trading activity in 11 domestic large cap
stock, high grade bond and money market funds. MFS' former Chief Executive
Officer, John W. Ballen, and former President, Kevin R. Parke, have also
reached agreement with the SEC (Messrs. Ballen and Parke resigned their
director and officer positions with MFS on February 13, 2004). Under the terms
of the February Settlements, MFS and the executives neither admit nor deny
wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Boards of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with the
NYAG to reduce its management fees in the aggregate amount of approximately
$25 million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine
to NH in the amount of $1 million, which will be used for investor education
purposes (NH will retain $250,000 and $750,000 will be contributed to the
North American Securities Administrators Association's Investor Protection
Trust). In addition, MFS and the Retail Funds will adopt certain governance
changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as
trustees of all MFS funds, and Mr. Ballen resigned his position as President
of all MFS funds, effective February 6, 2004. Messrs. Ballen and Parke will
not be returning to MFS or the MFS funds after their suspensions.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The
lawsuits variously have been commenced as class actions or individual actions
on behalf of investors who purchased, held or redeemed shares of the funds
during specified periods, as class actions on behalf of participants in
certain retirement plan accounts, or as derivative actions on behalf of the
MFS funds. The lawsuits generally allege that some or all of the defendants
(i) permitted or acquiesced in market timing and/or late trading in some of
the MFS funds, inadequately disclosed MFS' internal policies concerning market
timing and such matters, and received excessive compensation as fiduciaries to
the MFS fund, or (ii) permitted or acquiesced in the improper use of fund
assets by MFS to support the distribution of fund shares and inadequately
disclosed MFS' use of fund assets in this manner. The actions assert that some
or all of the defendants violated the federal securities laws, including the
Securities Act of 1933 and the Securities Exchange Act of 1934, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, the Employee
Retirement Income Security Act of 1974, as well as fiduciary duties and other
violations of common law. The lawsuits seek unspecified compensatory damages.
Insofar as any of the actions is appropriately brought derivatively on behalf
of any of the MFS funds, any recovery will inure to the benefit of the funds.
The defendants are reviewing the allegations of the multiple complaints and
will respond appropriately. Additional lawsuits based on similar allegations
may be filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS
has established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the
funds, and will pay $50 million to compensate certain MFS funds based upon the
amount of brokerage commissions allocated in recognition of fund sales. It is
not clear whether these amounts will be sufficient to compensate shareholders
for all of the damage they allegedly sustained, whether certain shareholders
or putative class members may have additional claims to compensation, or
whether the damages that may be awarded in any of the actions will exceed
these amounts. In the event the MFS funds incur any losses, costs or expenses
in connection with such lawsuits, the Boards of Trustees of the affected funds
may pursue claims on behalf of such funds against any party that may have
liability to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- --------------------------------------------------------------------------------------------------------------
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
JOHN W. BALLEN(2)(5) (born 09/12/59) Trustee and DAVID H. GUNNING(4) (born 05/30/42) Trustee
President Cleveland-Cliffs Inc. (mining products and service
Massachusetts Financial Services Company, Chief provider), Vice Chairman/Director (since April
Executive Officer and Director (until February 2001); Encinitos Ventures (private investment
2004) company), Principal (1997 to April 2001); Lincoln
Electric Holdings, Inc. (welding equipment
ROBERT J. MANNING(2)(8) (born 10/20/63) Trustee manufacturer), Director; Southwest Gas Corporation
and President (natural gas distribution company), Director
Massachusetts Financial Services Company, Chief
Executive Officer, President, Chief investment WILLIAM R. GUTOW (born 09/27/41) Trustee
Officer and Director Private investor and real estate consultant;
Capitol Entertainment Management Company (video
KEVIN R. PARKE(2)(5) (born 12/14/59) Trustee franchise), Vice Chairman
Massachusetts Financial Services Company,
President, Chief Investment Officer and Director AMY B. LANE(4) (born 02/08/53) Trustee
(until February 2004) Retired; Merrill Lynch & Co., Inc., Managing
Director, Investment Banking Group (1997 to
ROBERT C. POZEN(2)(8) (born 08/08/46) Trustee February 2001); Borders Group, Inc. (book and
Massachusetts Financial Services Company, Chairman music retailer), Director; Federal Realty
(since February 2004); Harvard Law School Investment Trust (real estate investment trust),
(education), John Olin Visiting Professor (since Trustee
July 2002); Secretary of Economic Affairs, The
Commonwealth of Massachusetts (January 2002 to ABBY M. O'NEIL(3) (born 04/27/28) Trustee
December 2002); Fidelity Investments, Vice Private Investor; Rockefeller Financial Services,
Chairman (June 2000 to December 2001); Fidelity Inc. (investment advisors), Chairman and Chief
Management & Research Company (investment Executive Officer
adviser), President (March 1997 to July 2001); The
Bank of New York (financial services), Director; LAWRENCE T. PERERA (born 06/23/35) Trustee
Bell Canada Enterprises (telecommunications), Hemenway & Barnes (attorneys), Partner
Director; Telesat (satellite communications),
Director WILLIAM J. POORVU (born 04/10/35) Trustee
Private investor; Harvard University Graduate
JEFFREY L. SHAMES(2)(7) (born 06/02/55) Trustee School of Business Administration, Class of 1961
Massachusetts Financial Services Company, Chairman Adjunct Professor in Entrepreneurship Emeritus;
(until February 2004) CBL & Associates Properties, Inc. (real estate
investment trust), Director
INDEPENDENT TRUSTEES
J. ATWOOD IVES (born 05/01/36) Co-Chair J. DALE SHERRATT (born 09/23/38) Trustee
Private investor; KeySpan Corporation (energy Insight Resources, Inc. (acquisition planning
related services), Director; Eastern Enterprises specialists), President; Wellfleet Investments
(diversified services company), Chairman, Trustee (investor in health care companies), Managing
and Chief Executive Officer (until November 2000) General Partner (since 1993); Cambridge
Nutraceuticals (professional nutritional
WARD SMITH (born 09/13/30) Co-Chair products), Chief Executive Officer (until May
Private investor 2001)
LAWRENCE H. COHN, M.D. (born 03/11/37) Trustee ELAINE R. SMITH (born 04/25/46) Trustee
Brigham and Women's Hospital, Chief of Cardiac Independent health care industry consultant
Surgery; Harvard Medical School, Professor of
Surgery
OFFICERS
JOHN W. BALLEN(5) (born 09/12/59) Trustee and RICHARD M. HISEY (born 08/29/58) Treasurer
President Massachusetts Financial Services Company, Senior
Massachusetts Financial Services Company, Chief Vice President (since July 2002); The Bank of New
Executive Officer and Director York, Senior Vice President (September 2000 to
July 2002); Lexington Global Asset Managers, Inc.,
JAMES R. BORDEWICK, JR. (born 03/06/59) Assistant Executive Vice President and Chief Financial
Secretary and Assistant Clerk Officer (prior to September 2000); Lexington
Massachusetts Financial Services Company, Senior Funds, Treasurer (prior to September 2000)
Vice President and Associate General Counsel
ROBERT J. MANNING(6) (born 10/20/63) President
STEPHEN E. CAVAN (born 11/06/53) Secretary and Massachusetts Financial Services Company, Chief
Clerk Executive Officer, President, Chief Investment
Massachusetts Financial Services Company, Senior Officer and Director
Vice President, General Counsel and Secretary
ELLEN MOYNIHAN (born 11/13/57) Assistant Treasurer
STEPHANIE A. DESISTO (born 10/01/53) Assistant Massachusetts Financial Services Company, Vice
Treasurer President
Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers JAMES O. YOST (born 06/12/60) 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)
ROBERT R. FLAHERTY (born 09/18/63) Assistant
Treasurer
Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
(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.
(3) Retired December 31, 2003.
(4) Appointed Trustee on January 27, 2004.
(5) Resigned February 6, 2004.
(6) Appointed President on February 6, 2004.
(7) Resigned February 13, 2004.
(8) Appointed Trustee on February 24, 2004.
Trustees and Officers - continued
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders" meeting in 2005 and at least once every five
years thereafter to elect Trustees. Each Trustee and officer will hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Messrs. Ives, Perera and Poorvu, and Ms. Smith have served in their capacity as Trustee of the Trust
continuously since originally elected or appointed. Mr. Shames served as Trustee of the Trust continously
since originally appointed until February 13, 2004. Mr. Gutow has served as a Trustee of the Trust
continuously since originally appointed. Messrs. Cohn, Sherratt and Smith, and Mr. Smith, were elected by
shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Ballen was elected by
shareholders and served as a Trustee from January 1, 2002, until February 6, 2004, and Mr. Parke served as a
Trustee of the Trust from January 1, 2002, until February 6, 2004. Mr. Gunning and Ms. Lane have served as
Trustees of the Trust since January 27, 2004, and Messrs. Manning and Pozen have served as Trustees since
February 24, 2004.
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 109 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
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
DIRECTOR OF GLOBAL EQUITY RESEARCH
David A. Antonelli
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
A general description of the MFS Funds proxy voting policies and
procedures 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
MFS(R) JAPAN EQUITY FUND
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C)2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distriutors, Inc.
500 Boylston Street, Boston, MA 02116 INC 1-SEM-4/04
MFS(R)Mutual Funds
SEMIANNUAL REPORT 2/29/04
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
The fund seeks capital appreciation.
- --------------------------------------------------------------------------------
To view MFS' statement concerning regulatory issues affecting the mutual fund
industry and the firm, please visit mfs.com.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 9
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 13
- ----------------------------------------------------
FINANCIAL STATEMENTS 20
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 37
- ----------------------------------------------------
TRUSTEES AND OFFICERS 48
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 50
- ----------------------------------------------------
CONTACT INFORMATION 51
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LETTER FROM THE CEO
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
As the firm's new Chief Executive Officer, I want to thank you for your
continued trust in MFS and tell you about the series of actions we have taken
since our recent settlements with the regulators. These actions are designed
to enhance the governance structure of the MFS funds, tighten our business
practices, and strengthen the management team at MFS.
In early February, Robert Pozen joined MFS as non-executive Chairman. A
seasoned veteran of the mutual fund industry, Bob has held prior positions as
President of Fidelity Management & Research Company, as Associate General
Counsel of the Securities and Exchange Commission, and as a visiting professor
at Harvard Law School.
In an effort to develop and implement policies that we believe will set a new
standard in regulatory compliance, MFS has hired two new senior executives.
Jeffrey Carp is joining us as General Counsel with responsibility for all of
our legal affairs. Previously he was a senior partner with the law firm of
Hale and Dorr LLP. Also joining MFS in the new position of Executive Vice
President of Regulatory Affairs is Maria Dwyer, who returned to the firm after
serving as a senior executive at Fidelity. At MFS, Maria is in charge of
compliance, internal audit, and fund treasury.
In the area of governance, we have taken steps to enhance the independence of
our funds' boards of trustees to better protect the interests of shareholders.
We have independent board chairs and at least 75% of the trustees are
independent. The trustees will appoint not only their own counsel but also an
independent compliance officer. This officer will assist the boards and their
committees in monitoring the MFS funds' compliance with federal and
state regulations.
In February, MFS reached agreements with federal and state regulators to
settle their administrative proceedings against the firm and two senior
executives in connection with market timing and related issues. Under the
terms of the settlements, we agreed to pay $225 million to compensate affected
retail fund shareholders. The $225 million will be distributed in accordance
with a distribution plan developed by an independent consultant.
We have further agreed with state regulators to reduce management fees on
certain funds we advise by approximately $25 million annually over the next
five years and to pay an administrative fine of $1 million, which will be used
for the purpose of investor education. We have introduced a set of policies
designed to protect the MFS funds and MFS fund shareholders from market timing
abuses. By July, all MFS retail funds, except money market funds, will have a
2% redemption fee on short-term trades. Our global, international, high-yield,
mid- and small-cap funds will impose the 2% fee on redemptions or exchanges of
fund shares made within 30 calendar days of a share purchase. For all other
MFS funds, except money market funds, the 2% fee will be imposed on
redemptions or exchanges made within 5 business days of a share purchase. See
the fund prospectus for more information.
We continue to use fair value pricing, a strategy that minimizes the potential
for investors to take advantage of "stale" prices. These can occur, as one
example, when funds own foreign securities whose prices close on overseas
exchanges in different time zones. At the same time, we enhanced our
monitoring of excessive trading. We did so by increasing our staff and
updating our computer systems to improve our ability to detect excessive
trading in our funds. Finally, we are supporting industry efforts to establish
a "hard" 4 p.m. close on all trading, which would prevent the possibility of
late trading.
In March, MFS reached a second settlement with the SEC under an administrative
proceeding resolving the SEC's investigation into how we disclosed brokerage
allocation practices in connection with fund sales. According to the
settlement order, we did not effectively disclose the potential conflict of
interest that may arise from these arrangements.
Under the terms of the settlement, MFS has agreed to pay one dollar in
disgorgement and $50 million in penalty to MFS fund shareholders. The
settlement noted that MFS had policies in place designed to obtain best
execution of all trades of securities within MFS portfolios.
This past November, MFS eliminated the above mentioned practice of directing
brokerage commissions to certain firms in recognition of fund sales.
Additionally, we announced in March that we would ban the use of soft dollars
to acquire third-party securities research and market data. Soft dollars are
permitted under federal securities laws. In fact, it is a common industry
practice to use a portion of the brokerage commissions to pay for certain
research and execution products and services that are provided to asset
managers. MFS will now pay cash out of its own pocket for third-party research
and market data.
MFS continues to be financially strong, with more than U.S. $140 billion (as
of 12/31/03) in assets under management, which continued to be stable during
the first quarter of 2004. We also have the full support of our parent
company, Sun Life Financial, an internationally diversified financial services
firm that manages more than U.S. $269 billion (as of 12/31/03).
We chose to settle these two proceedings with the SEC so we could concentrate
on serving our fund shareholders. As Chief Investment Officer, my focus is on
ensuring that our portfolio teams work closely together and take full
advantage of all the resources available to them to deliver the best possible
investment performance.
As the inventor of the open-end mutual fund in America in 1924, MFS has a
strong tradition and culture of innovation. By strengthening our business and
governance practices, we believe we have an unprecedented opportunity to set a
new standard in the mutual fund industry.
As I look ahead, I do so with confidence. The collaboration among MFS
employees, many of whom have worked at the firm for their entire careers,
continues as we remain singularly dedicated to our clients. It has been our
sincere privilege to serve you, and we thank you for the confidence that you
have shown in MFS.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer
MFS Investment Management(R)
March 15, 2004
Note to Shareholders: On February 6, 2004, Jeffrey L. Shames retired as
Chairman of MFS. Robert Pozen was named as non-executive Chairman. Also,
on February 6, 2004, Robert J. Manning was appointed Chief Executive Officer,
President, and Chief Investment Officer.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 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 turnaround in global stock markets that began in the spring of 2003
continued for most of the six-month period ended February 29, 2004. The release
of increasingly positive economic numbers as the period progressed,
particularly with regard to corporate earnings and GDP (gross domestic product)
growth, helped drive the equity rally. By late 2003, corporate capital
spending, which had been weak for some time, had also begun to accelerate.
Another driver of the equity rally, in our view, was the U.S. Federal Reserve
Board's decision to leave interest rates at a four-decade low throughout the
period. While energy prices rose late in the period, core inflation - excluding
volatile food and energy prices - remained very low relative to historical
averages.
DETRACTORS FROM PERFORMANCE
Over the six-month period ended February 29, 2004, the fund outperformed the
average large-cap growth fund, as reported by Lipper Inc., but underperformed
its benchmark, the Russell 1000
Growth Index.
Relative to our benchmark, leisure was the fund's weakest area over the
period. Stock selection as well as an overweighting in the sector hurt results
as the sector underperformed the broad market. Going into the period, we
believed our positions in advertising-sensitive broadcasting stocks would
benefit from increased ad spending as the U.S. economy recovered. However,
advertising spending, particularly in local markets, stagnated somewhat during
the period. Fund positions such as media conglomerate Viacom, radio station
operator Clear Channel Communications and radio and television programming
provider Westwood One detracted from relative performance. As of the end of
the period, however, all three stocks remained significant positions in the
portfolio. We believed they could benefit in 2004 from the confluence of a
stronger economy, a U.S. presidential election, and the summer Olympics.
- -----------------------------------------------
TOP 5 SECTOR WEIGHTINGS
AS OF 2/29/04
TECHNOLOGY 32.7%
- -----------------------------------------------
HEALTH CARE 14.4%
- -----------------------------------------------
FINANCIAL SERVICES 14.1%
- -----------------------------------------------
LEISURE 12.9%
- -----------------------------------------------
RETAILING 10.9%
- -----------------------------------------------
The portfolio is actively managed, and current
weightings may be different.
- -----------------------------------------------
In the health care sector, stock selection and an underweighting relative to
our benchmark held back performance as the sector did well over the period.
Our biggest relative detractor was pharmaceutical giant Pfizer. Although we
held a significant position in the stock as its shares gained more than the
broad market, relative performance suffered because we were underweighted in
the stock compared with our benchmark.
Underweighting consumer staples concerns also hurt performance over the period
as investors, in our view, began to favor some of the more defensive stocks
they had shunned in early and mid-2003. More specifically, not owning food and
tobacco conglomerate Altria Group (formerly Philip Morris) and consumer
products firm Procter & Gamble detracted from relative returns over the
period. (Those stocks, however, were not among the fund's top detractors for
the period.)
Individual stocks in other sectors that meaningfully held back relative
results included our position in moderate-priced apparel retailer Kohl's. We
believe mediocre merchandising, together with adverse weather in key markets,
caused the firm to report weak operating results. We viewed these issues as
surmountable and maintained our Kohl's holding over the period. Relative
performance was also hurt by our overweighted position in financial
transaction processor BISYS Group, whose stock fell in price over the period.
And while overall stock selection in the technology sector did help
performance, a number of our technology stocks declined in price and were key
detractors during the period. These included electronic commerce firm
InterActiveCorp, storage solution provider VERITAS Software, and semiconductor
manufacturing equipment company Novellus Systems. On a relative basis, our
position in cellular phone technology firm QUALCOMM also detracted from
performance because we sold our holding during the period and missed much of
the stock's strong performance.
The portfolio's cash position also detracted from relative performance. As
with nearly all mutual funds, this portfolio holds some cash to buy new
holdings and to cover investor exchanges or redemptions. In a period when
equity markets rose sharply, cash hurt performance against our benchmark, the
Russell 1000 Growth Index, which has no cash position.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the technology sector contributed strongly to relative
results. A number of technology stocks were among the fund's top performers
for the period, including telecom infrastructure firm Nortel Networks,
programmable logic designer/manufacturer Xilinx, and e-business services
provider Akamai Technologies. Not owning semiconductor giant Intel also helped
relative results as the stock, which had soared for much of 2003, retreated in
early 2004. Concern about the stock's high valuation had led us to avoid
Intel.
A relative overweighting in the utilities and communications sector also
helped relative returns as that sector was by far the strongest-performing
area in the Russell 1000 Growth Index for the period. Cellular phone company
Sprint PCS, whose stock appreciated sharply, was among our holdings in the
sector.
In the industrial goods and services area, stock selection and an
underweighting in the sector both helped fund performance. Our strongest
contributor in the sector was conglomerate Tyco International, which did well
as new management began to turn around the firm's performance.
An overweighting in the financial services sector also added to results as
that sector outperformed the broad market. Insurance and reinsurance firm Ace
Ltd. was our largest contributor in that sector.
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 views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
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Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment- related news.
o From Week in Review, link to MFS Global Investment Perspective for our current
view of the world.
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- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/29/04
- -------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Performance results reflect the percentage change
in net asset value, including the reinvestment of any dividends and capital
gains distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr Life*
- ----------------------------------------------------------------------------
A 1/02/1996 -- 35.88% -8.41% -2.84% 13.19%
- ----------------------------------------------------------------------------
B 4/11/1997 -- 34.94% -9.01% -3.46% 12.55%
- ----------------------------------------------------------------------------
C 4/11/1997 -- 34.96% -9.01% -3.46% 12.58%
- ----------------------------------------------------------------------------
I 1/02/1997 -- 36.32% -8.08% -2.49% 13.52%
- ----------------------------------------------------------------------------
J 2/10/2000 -- 34.92% -9.00% -3.35% 12.83%
- ----------------------------------------------------------------------------
R1 12/31/2002 -- 35.66% -8.46% -2.87% 13.17%
- ----------------------------------------------------------------------------
R2 10/31/2003 -- 35.75% -8.44% -2.86% 13.18%
- ----------------------------------------------------------------------------
529A 7/31/2002 -- 35.71% -8.49% -2.89% 13.15%
- ----------------------------------------------------------------------------
529B 7/31/2002 -- 34.58% -8.84% -3.11% 12.99%
- ----------------------------------------------------------------------------
529C 7/31/2002 -- 34.63% -8.85% -3.12% 12.99%
- ----------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks 6-mo 1-yr 3-yr 5-yr Life*
- ----------------------------------------------------------------------------
Average large-cap growth fund+ 9.92% 33.18% -6.49% -3.82% 6.18%
- ----------------------------------------------------------------------------
Russell 1000 Growth Index# 12.17% 37.18% -4.85% -4.80% 7.17%
- ----------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
- --------------------
Average annual
with sales charge
- --------------------
Share
class
- ----------------------------------------------------------------------------
A -- 28.07% -10.20% -3.98% 12.37%
- ----------------------------------------------------------------------------
B -- 30.94% -9.92% -3.78% 12.55%
- ----------------------------------------------------------------------------
C -- 33.96% -9.01% -3.46% 12.58%
- ----------------------------------------------------------------------------
J -- 30.88% -9.92% -3.93% 12.40%
- ----------------------------------------------------------------------------
529A -- 27.91% -10.28% -4.04% 12.33%
- ----------------------------------------------------------------------------
529B -- 30.58% -9.73% -3.42% 12.99%
- ----------------------------------------------------------------------------
529C -- 33.63% -8.85% -3.12% 12.99%
- ----------------------------------------------------------------------------
I, R1 and R2 class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
Share
class 6-mo 1-yr 3-yr 5-yr Life*
- ----------------------------------------------------------------------------
A 10.62% 35.88% -23.17% -13.41% 174.68%
- ----------------------------------------------------------------------------
B 10.31% 34.94% -24.66% -16.15% 162.38%
- ----------------------------------------------------------------------------
C 10.29% 34.96% -24.66% -16.13% 162.85%
- ----------------------------------------------------------------------------
I 10.85% 36.32% -22.35% -11.84% 181.38%
- ----------------------------------------------------------------------------
J 10.25% 34.92% -24.65% -15.65% 167.57%
- ----------------------------------------------------------------------------
R1 10.57% 35.66% -23.29% -13.56% 174.23%
- ----------------------------------------------------------------------------
R2 10.51% 35.75% -23.24% -13.50% 174.41%
- ----------------------------------------------------------------------------
529A 10.65% 35.71% -23.38% -13.65% 173.93%
- ----------------------------------------------------------------------------
529B 10.14% 34.58% -24.25% -14.63% 170.81%
- ----------------------------------------------------------------------------
529C 10.13% 34.63% -24.28% -14.66% 170.72%
- ----------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through February 29, 2004. 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
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
A portion of the returns shown is attributable to the receipt of a non-recurring
payment in settlement of a class action lawsuit.
Class A and 529A results, including sales charge, reflect the deduction of the
maximum 5.75% sales charge. Class B and 529B results, including sales charge,
reflect 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 reflect the deduction of the 1% CDSC. Class I shares have no
sales charge and are available only to certain investors. Class J results,
including sales charge, reflect the deduction of the maximum 3% sales charge
and are available only to residents of Japan. Class R1 and R2 shares have no
sales charge 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.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details. All results are historical and
include the reinvestment of dividends and capital gains.
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 - (unaudited) 2/29/04
- -------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 97.7%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------
U.S. Stocks - 91.9%
- -------------------------------------------------------------------------------------------------
Airlines - 0.2%
- -------------------------------------------------------------------------------------------------
Southwest Airlines Co. 225,300 $3,111,393
- -------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.0%
- -------------------------------------------------------------------------------------------------
Reebok International Ltd. 428,900 $17,074,509
- -------------------------------------------------------------------------------------------------
Banks & Credit Companies - 6.4%
- -------------------------------------------------------------------------------------------------
American Express Co. 577,400 $30,844,708
- -------------------------------------------------------------------------------------------------
Bank of New York Co., Inc. 267,400 8,824,200
- -------------------------------------------------------------------------------------------------
Citigroup, Inc. 616,757 30,998,207
- -------------------------------------------------------------------------------------------------
Fannie Mae 90,900 6,808,410
- -------------------------------------------------------------------------------------------------
MBNA Corp. 342,100 9,349,593
- -------------------------------------------------------------------------------------------------
Mellon Financial Corp. 256,600 8,308,708
- -------------------------------------------------------------------------------------------------
Northern Trust Corp. 326,800 16,225,620
- -------------------------------------------------------------------------------------------------
$111,359,446
- -------------------------------------------------------------------------------------------------
Biotechnology - 3.8%
- -------------------------------------------------------------------------------------------------
Amgen, Inc.* 206,700 $13,131,651
- -------------------------------------------------------------------------------------------------
Genzyme Corp.* 429,600 21,815,088
- -------------------------------------------------------------------------------------------------
Gilead Sciences, Inc.* 457,200 24,784,812
- -------------------------------------------------------------------------------------------------
Protein Design Labs, Inc.* 285,300 6,847,200
- -------------------------------------------------------------------------------------------------
$66,578,751
- -------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 4.5%
- -------------------------------------------------------------------------------------------------
Comcast Holdings Corp.* 688,900 $20,129,658
- -------------------------------------------------------------------------------------------------
Cox Communications, Inc.(#)* 189,400 6,136,560
- -------------------------------------------------------------------------------------------------
Cox Radio, Inc.* 139,800 3,068,610
- -------------------------------------------------------------------------------------------------
EchoStar Communications Corp., "A"* 193,935 7,004,932
- -------------------------------------------------------------------------------------------------
Entercom Communications Corp.* 107,000 4,939,120
- -------------------------------------------------------------------------------------------------
Time Warner, Inc.* 517,700 8,930,325
- -------------------------------------------------------------------------------------------------
Univision Communications, Inc.(#)* 345,800 12,320,854
- -------------------------------------------------------------------------------------------------
Westwood One, Inc.* 515,900 15,941,310
- -------------------------------------------------------------------------------------------------
$78,471,369
- -------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.7%
- -------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 213,900 $22,645,593
- -------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 407,400 24,936,954
- -------------------------------------------------------------------------------------------------
$47,582,547
- -------------------------------------------------------------------------------------------------
Business Services - 1.8%
- -------------------------------------------------------------------------------------------------
BISYS Group, Inc.(#)* 150,138 $2,649,936
- -------------------------------------------------------------------------------------------------
DST Systems, Inc.(#)* 202,600 9,068,376
- -------------------------------------------------------------------------------------------------
Fiserv, Inc.* 138,900 5,362,929
- -------------------------------------------------------------------------------------------------
Getty Images, Inc.* 119,700 6,099,912
- -------------------------------------------------------------------------------------------------
Monster Worldwide, Inc.* 366,200 8,056,400
- -------------------------------------------------------------------------------------------------
$31,237,553
- -------------------------------------------------------------------------------------------------
Computer Software - 9.7%
- -------------------------------------------------------------------------------------------------
Akamai Technologies, Inc.(#)* 843,700 $12,655,500
- -------------------------------------------------------------------------------------------------
Ascential Software Corp.* 85,300 1,924,368
- -------------------------------------------------------------------------------------------------
BEA Systems, Inc.(#)* 374,600 5,169,480
- -------------------------------------------------------------------------------------------------
Manhattan Associates, Inc.(#)* 100,100 2,868,866
- -------------------------------------------------------------------------------------------------
Mercury Interactive Corp.* 386,800 18,775,272
- -------------------------------------------------------------------------------------------------
Microsoft Corp. 2,564,300 67,953,950
- -------------------------------------------------------------------------------------------------
Network Associates, Inc.* 1,173,200 20,577,928
- -------------------------------------------------------------------------------------------------
Oracle Corp.* 1,202,900 15,493,352
- -------------------------------------------------------------------------------------------------
VERITAS Software Corp.* 761,179 23,155,065
- -------------------------------------------------------------------------------------------------
$168,573,781
- -------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.0%
- -------------------------------------------------------------------------------------------------
International Business Machines Corp. 360,400 $34,778,600
- -------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.7%
- -------------------------------------------------------------------------------------------------
Avon Products, Inc. 171,500 $12,107,900
- -------------------------------------------------------------------------------------------------
Electrical Equipment - 5.9%
- -------------------------------------------------------------------------------------------------
Cooper Industries Ltd. 131,600 $6,962,956
- -------------------------------------------------------------------------------------------------
Danaher Corp. 109,500 9,814,485
- -------------------------------------------------------------------------------------------------
Emerson Electric Co. 206,600 12,908,368
- -------------------------------------------------------------------------------------------------
General Electric Co. 1,009,800 32,838,696
- -------------------------------------------------------------------------------------------------
Molex, Inc.(#) 297,600 9,427,968
- -------------------------------------------------------------------------------------------------
Tyco International Ltd. 1,054,704 30,132,893
- -------------------------------------------------------------------------------------------------
$102,085,366
- -------------------------------------------------------------------------------------------------
Electronics - 7.8%
- -------------------------------------------------------------------------------------------------
Amphenol Corp.* 66,000 $4,082,100
- -------------------------------------------------------------------------------------------------
Analog Devices, Inc. 523,900 26,142,610
- -------------------------------------------------------------------------------------------------
Linear Technology Corp. 347,900 13,912,521
- -------------------------------------------------------------------------------------------------
Maxim Integrated Products, Inc. 299,100 14,928,081
- -------------------------------------------------------------------------------------------------
Microchip Technology, Inc. 413,200 11,776,200
- -------------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 303,000 9,741,450
- -------------------------------------------------------------------------------------------------
PMC-Sierra, Inc.(#)* 450,800 8,970,920
- -------------------------------------------------------------------------------------------------
Texas Instruments, Inc. 788,700 24,173,655
- -------------------------------------------------------------------------------------------------
Xilinx, Inc.* 528,800 22,230,752
- -------------------------------------------------------------------------------------------------
$135,958,289
- -------------------------------------------------------------------------------------------------
Entertainment - 3.9%
- -------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc. 498,900 $21,472,656
- -------------------------------------------------------------------------------------------------
Fox Entertainment Group, Inc.* 295,700 8,581,214
- -------------------------------------------------------------------------------------------------
Viacom, Inc. 855,213 32,891,492
- -------------------------------------------------------------------------------------------------
Walt Disney Co. 196,120 5,203,064
- -------------------------------------------------------------------------------------------------
$68,148,426
- -------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.7%
- -------------------------------------------------------------------------------------------------
CVS Corp. 352,600 $13,222,500
- -------------------------------------------------------------------------------------------------
Rite Aid Corp.* 1,110,700 6,197,706
- -------------------------------------------------------------------------------------------------
Walgreen Co. 294,300 10,494,738
- -------------------------------------------------------------------------------------------------
$29,914,944
- -------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.7%
- -------------------------------------------------------------------------------------------------
PepsiCo, Inc. 249,000 $12,923,100
- -------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.5%
- -------------------------------------------------------------------------------------------------
Carnival Corp. 385,800 $17,117,946
- -------------------------------------------------------------------------------------------------
Hilton Hotels Corp. 372,700 5,974,381
- -------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 95,700 3,733,257
- -------------------------------------------------------------------------------------------------
$26,825,584
- -------------------------------------------------------------------------------------------------
General Merchandise - 5.7%
- -------------------------------------------------------------------------------------------------
Kohl's Corp.* 507,700 $26,146,550
- -------------------------------------------------------------------------------------------------
Target Corp. 757,300 33,290,908
- -------------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 671,276 39,981,198
- -------------------------------------------------------------------------------------------------
$99,418,656
- -------------------------------------------------------------------------------------------------
Insurance - 3.9%
- -------------------------------------------------------------------------------------------------
American International Group, Inc. 508,389 $37,620,786
- -------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. 291,060 19,064,430
- -------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 121,900 5,849,981
- -------------------------------------------------------------------------------------------------
UNUMProvident(#) 394,840 5,851,529
- -------------------------------------------------------------------------------------------------
$68,386,726
- -------------------------------------------------------------------------------------------------
Internet - 1.3%
- -------------------------------------------------------------------------------------------------
eBay, Inc.* 64,800 $4,462,128
- -------------------------------------------------------------------------------------------------
InterActiveCorp.(#)* 574,300 18,704,951
- -------------------------------------------------------------------------------------------------
$23,167,079
- -------------------------------------------------------------------------------------------------
Machinery & Tools - 1.0%
- -------------------------------------------------------------------------------------------------
Eaton Corp. 61,000 $3,570,940
- -------------------------------------------------------------------------------------------------
Illinois Tool Works, Inc. 105,100 8,357,552
- -------------------------------------------------------------------------------------------------
Parker Hannifin Corp.(#) 107,700 6,049,509
- -------------------------------------------------------------------------------------------------
$17,978,001
- -------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.4%
- -------------------------------------------------------------------------------------------------
HCA, Inc. 160,200 $6,811,704
- -------------------------------------------------------------------------------------------------
Medical Equipment - 2.9%
- -------------------------------------------------------------------------------------------------
Applera Corp. 167,500 $3,819,000
- -------------------------------------------------------------------------------------------------
Baxter International, Inc. 301,900 8,791,328
- -------------------------------------------------------------------------------------------------
Medtronic, Inc. 299,500 14,046,550
- -------------------------------------------------------------------------------------------------
Thermo Electron Corp.* 466,400 13,091,848
- -------------------------------------------------------------------------------------------------
Waters Corp. 279,000 10,306,260
- -------------------------------------------------------------------------------------------------
$50,054,986
- -------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.8%
- -------------------------------------------------------------------------------------------------
Avid Technology, Inc.* 110,400 $4,688,688
- -------------------------------------------------------------------------------------------------
Dell, Inc.* 795,700 25,979,605
- -------------------------------------------------------------------------------------------------
$30,668,293
- -------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.0%
- -------------------------------------------------------------------------------------------------
Abbott Laboratories 369,600 $15,818,880
- -------------------------------------------------------------------------------------------------
Eli Lilly & Co. 181,000 13,383,140
- -------------------------------------------------------------------------------------------------
Johnson & Johnson 696,900 37,569,879
- -------------------------------------------------------------------------------------------------
Pfizer, Inc. 1,034,060 37,898,299
- -------------------------------------------------------------------------------------------------
Schering-Plough Corp. 69,800 1,253,608
- -------------------------------------------------------------------------------------------------
Wyeth 397,868 15,715,786
- -------------------------------------------------------------------------------------------------
$121,639,592
- -------------------------------------------------------------------------------------------------
Printing & Publishing - 1.8%
- -------------------------------------------------------------------------------------------------
Lamar Advertising Co.* 458,850 $18,216,345
- -------------------------------------------------------------------------------------------------
New York Times Co. 281,700 12,856,788
- -------------------------------------------------------------------------------------------------
$31,073,133
- -------------------------------------------------------------------------------------------------
Restaurants - 0.9%
- -------------------------------------------------------------------------------------------------
McDonald's Corp. 124,700 $3,529,010
- -------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 257,800 12,474,942
- -------------------------------------------------------------------------------------------------
$16,003,952
- -------------------------------------------------------------------------------------------------
Specialty Stores - 2.2%
- -------------------------------------------------------------------------------------------------
Chico's FAS, Inc.(#)* 38,100 $1,628,775
- -------------------------------------------------------------------------------------------------
Circuit City Stores, Inc. 643,400 7,193,212
- -------------------------------------------------------------------------------------------------
Hot Topic, Inc.* 272,700 7,916,481
- -------------------------------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(#)* 268,900 6,445,533
- -------------------------------------------------------------------------------------------------
Staples, Inc.* 330,800 8,673,576
- -------------------------------------------------------------------------------------------------
Williams-Sonoma, Inc.* 218,100 6,977,019
- -------------------------------------------------------------------------------------------------
$38,834,596
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.3%
- -------------------------------------------------------------------------------------------------
Andrew Corp.(#)* 784,710 $13,983,532
- -------------------------------------------------------------------------------------------------
Sprint Corp. (PCS Group)* 1,029,300 9,263,700
- -------------------------------------------------------------------------------------------------
$23,247,232
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 5.8%
- -------------------------------------------------------------------------------------------------
ADTRAN, Inc. 710,000 $23,117,600
- -------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 2,357,900 54,467,490
- -------------------------------------------------------------------------------------------------
Corning, Inc.* 1,316,600 16,523,330
- -------------------------------------------------------------------------------------------------
Foundry Networks, Inc.* 332,100 7,837,560
- -------------------------------------------------------------------------------------------------
$101,945,980
- -------------------------------------------------------------------------------------------------
Telephone Services
- -------------------------------------------------------------------------------------------------
Winstar Communications, Inc.* 281,200 $506
- -------------------------------------------------------------------------------------------------
Trucking - 1.6%
- -------------------------------------------------------------------------------------------------
FedEx Corp. 231,500 $15,899,420
- -------------------------------------------------------------------------------------------------
United Parcel Service, Inc. 156,700 11,067,721
- -------------------------------------------------------------------------------------------------
$26,967,141
- -------------------------------------------------------------------------------------------------
Total U.S. Stocks $1,602,929,135
- -------------------------------------------------------------------------------------------------
Foreign Stocks - 5.8%
- -------------------------------------------------------------------------------------------------
Bermuda - 1.5%
- -------------------------------------------------------------------------------------------------
Ace Ltd. (Insurance) 285,300 $12,827,088
- -------------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. (Electronics)* 287,800 13,103,534
- -------------------------------------------------------------------------------------------------
$25,930,622
- -------------------------------------------------------------------------------------------------
Canada - 1.0%
- -------------------------------------------------------------------------------------------------
Nortel Networks Corp. (Telecommunications - Wireline)* 2,268,600 $18,103,428
- -------------------------------------------------------------------------------------------------
Finland - 0.8%
- -------------------------------------------------------------------------------------------------
Nokia Corp., ADR (Telecommunications - Wireless) 677,000 $14,738,290
- -------------------------------------------------------------------------------------------------
Singapore - 0.2%
- -------------------------------------------------------------------------------------------------
Flextronics International Ltd. (Personal Computers &
Peripherals)(#)* 196,100 $3,549,410
- -------------------------------------------------------------------------------------------------
South Korea - 1.1%
- -------------------------------------------------------------------------------------------------
Samsung Electronics Co. Ltd. (Electronics) 78,100 $18,236,350
- -------------------------------------------------------------------------------------------------
United Kingdom - 1.2%
- -------------------------------------------------------------------------------------------------
Amdocs Ltd. (Computer Software)* 355,700 $9,916,916
- -------------------------------------------------------------------------------------------------
Vodafone Group PLC (Telecommunications - Wireless)(#) 428,907 10,709,808
- -------------------------------------------------------------------------------------------------
$20,626,724
- -------------------------------------------------------------------------------------------------
Total Foreign Stocks $101,184,824
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,609,327,032) $1,704,113,959
- -------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.4%
- -------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -------------------------------------------------------------------------------------------------
Citicorp, due 3/11/04 $5,000 $4,998,569
- -------------------------------------------------------------------------------------------------
General Electric Capital Corp., due 3/01/04 11,422 11,422,000
- -------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., due 3/04/04 8,700 8,699,087
- -------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $25,119,656
- -------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 3.0%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Identified Cost 51,770,538 $51,770,538
- -------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,686,217,226) $1,781,004,153
- -------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (2.1)% (37,155,393)
- -------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,743,848,760
- -------------------------------------------------------------------------------------------------
* Non-income producing security.
(#) All or a portion of this security is on loan.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities composing
the total value of your fund.
AT 2/29/04
ASSETS
Investments, at value, including $50,513,459 of
securities on loan (identified cost, $1,686,217,226) $1,781,004,153
- -----------------------------------------------------------------------------------------------------
Cash 599
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 43,179,386
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 4,305,292
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 1,369,079
- -----------------------------------------------------------------------------------------------------
Other assets 890
- -----------------------------------------------------------------------------------------------------
Total assets $1,829,859,399
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $30,847,737
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 2,709,038
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 51,770,538
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 106,837
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 110,501
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 76,902
- -----------------------------------------------------------------------------------------------------
Administrative fee 2,454
- -----------------------------------------------------------------------------------------------------
Program manager fee 14
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 386,618
- -----------------------------------------------------------------------------------------------------
Total liabilities $86,010,639
- -----------------------------------------------------------------------------------------------------
Net assets $1,743,848,760
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $2,886,408,774
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 94,789,390
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (1,229,277,328)
- -----------------------------------------------------------------------------------------------------
Accumulated net investment loss (8,072,076)
- -----------------------------------------------------------------------------------------------------
Total $1,743,848,760
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 96,219,731
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $749,051,131
- -----------------------------------------------------------------------------------------------------
Shares outstanding 40,865,961
- -----------------------------------------------------------------------------------------------------
Net asset value per share $18.33
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$18.33) $19.45
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $525,034,280
- -----------------------------------------------------------------------------------------------------
Shares outstanding 29,748,066
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.65
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $145,738,539
- -----------------------------------------------------------------------------------------------------
Shares outstanding 8,241,915
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.68
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $316,132,465
- -----------------------------------------------------------------------------------------------------
Shares outstanding 16,918,404
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $18.69
- -----------------------------------------------------------------------------------------------------
Class J shares
Net assets $5,739,424
- -----------------------------------------------------------------------------------------------------
Shares outstanding 327,147
- -----------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $17.54
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/97.00X$17.54) $18.08
- -----------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $1,480,381
- -----------------------------------------------------------------------------------------------------
Shares outstanding 80,881
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $18.30
- -----------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $5,401
- -----------------------------------------------------------------------------------------------------
Shares outstanding 295.50
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $18.28
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class 529A shares
Net assets $400,125
- -----------------------------------------------------------------------------------------------------
Shares outstanding 21,892
- -----------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $18.28
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$18.28) $19.40
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $111,480
- -----------------------------------------------------------------------------------------------------
Shares outstanding 6,337
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.59
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $155,534
- -----------------------------------------------------------------------------------------------------
Shares outstanding 8,832
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.61
- -----------------------------------------------------------------------------------------------------
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 (unaudited)
- -----------------------------------------------------------------------------------------------------
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 SIX MONTHS ENDED 2/29/04
NET INVESTMENT INCOME (LOSS)
Income
- -----------------------------------------------------------------------------------------------------
Dividends $6,561,187
- -----------------------------------------------------------------------------------------------------
Interest 282,366
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (4,008)
- -----------------------------------------------------------------------------------------------------
Total investment income $6,839,545
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $6,000,204
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 23,684
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 1,629,347
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 1,235,795
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 2,558,031
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 716,310
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class J) 29,296
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 1,176
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 8
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 547
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 477
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 632
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 391
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 119
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 158
- -----------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 4
- -----------------------------------------------------------------------------------------------------
Administrative fee 49,425
- -----------------------------------------------------------------------------------------------------
Custodian fee 157,414
- -----------------------------------------------------------------------------------------------------
Printing 110,802
- -----------------------------------------------------------------------------------------------------
Postage 104,960
- -----------------------------------------------------------------------------------------------------
Auditing fees 17,569
- -----------------------------------------------------------------------------------------------------
Legal fees 3,884
- -----------------------------------------------------------------------------------------------------
Miscellaneous 239,740
- -----------------------------------------------------------------------------------------------------
Total expenses $12,879,973
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (38,759)
- -----------------------------------------------------------------------------------------------------
Net expenses $12,841,214
- -----------------------------------------------------------------------------------------------------
Net investment loss $(6,001,669)
- -----------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $48,094,899
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation
- -----------------------------------------------------------------------------------------------------
Investments $119,795,460
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 1,102
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $119,796,562
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $167,891,461
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $161,889,792
- -----------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/29/04 8/31/03
(UNAUDITED)
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment loss $(6,001,669) $(9,940,493)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 48,094,899 (193,494,679)
- -------------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation 119,796,562 423,557,663
- ------------------------------------------------------------- ------------- ------------
Increase in net assets from operations $161,889,792 $220,122,491
- ------------------------------------------------------------- ------------- ------------
Net increase (decrease) in net assets from fund share
transactions $92,332,938 $(131,989,369)
- ------------------------------------------------------------- ------------- ------------
Total increase in net assets $254,222,730 $88,133,122
- ------------------------------------------------------------- ------------- ------------
NET ASSETS
At beginning of period $1,489,626,030 $1,401,492,908
- -------------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment loss
of $8,072,076 and $2,070,407, respectively) $1,743,848,760 $1,489,626,030
- -------------------------------------------------------------------------------------------------------
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 semiannual period
and 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) held for the entire period.
SIX MONTHS YEAR ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS A 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $16.57 $14.03 $19.22 $39.19 $28.18 $18.79
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.05) $(0.07) $(0.13) $(0.17) $(0.28) $(0.18)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 1.81 2.61 (4.97) (15.53) 13.13 10.29
- ------------------------------- -------- ------ ------ ------ ------ ------
Total from investment
operations $1.76 $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 $18.33 $16.57 $14.03 $19.22 $39.19 $28.18
- ------------------------------- -------- ------ ------ ------ ------ ------
Total return (%)(+) 10.62++ 18.10(#) (26.70) (42.93) 47.18 54.40
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31
ENDED -------------------------------------------------------------------------------
CLASS A (CONTINUED) 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.38+ 1.41 1.45 1.37 1.32 1.38
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.53)+ (0.46) (0.74) (0.67) (0.78) (0.69)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 38 72 116 104 104 112
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $749,051 $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%.
+ 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 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
SIX MONTHS YEAR ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS B 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $16.00 $13.65 $18.80 $38.45 $27.75 $18.59
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.10) $(0.16) $(0.24) $(0.33) $(0.49) $(0.35)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 1.75 2.51 (4.82) (15.23) 12.92 10.18
- ------------------------------- -------- ------ ------ ------ ------ ------
Total from investment
operations $1.65 $2.35 $(5.06) $(15.56) $12.43 $9.83
- ------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 $17.65 $16.00 $13.65 $18.80 $38.45 $27.75
- ------------------------------- -------- ------ ------ ------ ------ ------
Total return (%) 10.31++ 17.22(#) (27.08) (43.32) 46.23 53.47
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.03+ 2.06 2.10 2.02 1.97 2.03
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.17)+ (1.12) (1.39) (1.32) (1.43) (1.34)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 38 72 116 104 104 112
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $525,034 $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%.
+ 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
SIX MONTHS YEAR ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS C 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $16.03 $13.67 $18.84 $38.54 $27.81 $18.63
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss $(0.10) $(0.16) $(0.24) $(0.34) $(0.49) $(0.35)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 1.75 2.52 (4.84) (15.25) 12.96 10.20
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total from investment operations $1.65 $2.36 $(5.08) $(15.59) $12.47 $9.85
- ---------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 $17.68 $16.03 $13.67 $18.84 $38.54 $27.81
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total return (%) 10.29++ 17.26(#) (27.13) (43.29) 46.27 53.40
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.03+ 2.06 2.10 2.02 1.97 2.03
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.17)+ (1.12) (1.39) (1.32) (1.43) (1.34)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 38 72 116 104 104 112
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $145,739 $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%.
+ 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
SIX MONTHS YEAR ENDED 8/31
ENDED ----------------------------------------------------------------------
CLASS I 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $16.86 $14.24 $19.41 $39.53 $28.36 $18.85
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss $(0.02) $(0.01) $(0.07) $(0.08) $(0.15) $(0.08)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investments and foreign currency 1.85 2.63 (5.01) (15.68) 13.22 10.34
- ---------------------------------- ---------- ------ ------ ------ ------ ------
Total from investment operations $1.83 $2.62 $(5.08) $(15.76) $13.07 $10.26
- ---------------------------------- ---------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 $18.69 $16.86 $14.24 $19.41 $39.53 $28.36
- ---------------------------------- ---------- ------ ------ ------ ------ ------
Total return (%) 10.85++ 18.40(#) (26.37) (42.73) 47.73 55.08
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.04+ 1.06 1.10 1.02 0.97 1.03
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.18)+ (0.10) (0.39) (0.32) (0.43) (0.34)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 38 72 116 104 104 112
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $316,132 $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 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 18.31%.
+ 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
SIX MONTHS YEAR ENDED 8/31 PERIOD
ENDED ------------------------------------------- ENDED
CLASS J 2/29/04 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning of period $15.91 $13.56 $18.69 $38.46 $35.94
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.10) $(0.16) $(0.24) $(0.34) $(0.37)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.73 2.51 (4.80) (15.19) 2.89
- ------------------------------------------------ ------- ------ ------ ------ ------
Total from investment operations $1.63 $2.35 $(5.04) $(15.53) $2.52
- ------------------------------------------------ ------- ------ ------ ------ ------
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 $17.54 $15.91 $13.56 $18.69 $38.46
- ------------------------------------------------ ------- ------ ------ ------ ------
Total return (%)(+) 10.25++ 17.33(#) (27.13) (43.31) 7.01++
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 2.03+ 2.06 2.10 2.02 1.97+
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.17)+ (1.12) (1.39) (1.32) (1.43)+
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 38 72 116 104 104
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $5,739 $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. For performance
calculation purposes, the Class J inception date was changed from December 31, 1999 to February 10, 2000 to reflect the date
of the initial sale of Class J shares. As a result, the total return and the beginning net asset value have been restated.
(#) 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
SIX MONTHS PERIOD
ENDED ENDED
CLASS R1 2/29/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $16.55 $13.94
- --------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.05) $(0.06)
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.80 2.67
- ------------------------------------------------------------ ----------------- ------
Total from investment operations $1.75 $2.61
- ------------------------------------------------------------ ----------------- ------
Net asset value, end of period $18.30 $16.55
- ------------------------------------------------------------ ----------------- ------
Total return (%) 10.57++ 18.72++(#)
- --------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.56+ 1.60+
- --------------------------------------------------------------------------------------------------------
Net investment loss (0.61)+ (0.60)+
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 38 72
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,480 $221
- --------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 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
PERIOD ENDED
2/29/04*
CLASS R2 (UNAUDITED)
Net asset value, beginning of period $17.01
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.05)
- -----------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.32
- -----------------------------------------------------------------------------
Total from investment operations $1.27
- -----------------------------------------------------------------------------
Net asset value, end of period $18.28
- -----------------------------------------------------------------------------
Total return (%) 7.47++
- -----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.77+
- -----------------------------------------------------------------------------
Net investment loss (0.91)+
- -----------------------------------------------------------------------------
Portfolio turnover 38
- -----------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $5
- -----------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through February 29, 2004.
+ 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
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
2/29/04 8/31/03 8/31/02*
CLASS 529A (UNAUDITED)
Net asset value, beginning of period $16.52 $14.03 $13.88
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.07) $(0.10) $(0.01)
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.83 2.59 0.16
- --------------------------------------------------------- --------- ------ ------
Total from investment operations $1.76 $2.49 $0.15
- --------------------------------------------------------- --------- ------ ------
Net asset value, end of period $18.28 $16.52 $14.03
- --------------------------------------------------------- --------- ------ ------
Total return (%) 10.65++ 17.75(#) 1.08++
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.64+ 1.67 1.70+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (0.77)+ (0.69) (0.74)+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 38 72 116
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $400 $225 $5
- -----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A 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 period ended August 31, 2003 would have been
17.66%.
+ 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
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
2/29/04 8/31/03 8/31/02*
CLASS 529B (UNAUDITED)
Net asset value, beginning of period $15.97 $13.65 $13.51
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.12) $(0.19) $(0.02)
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.74 2.51 0.16
- --------------------------------------------------------- --------- ------ ------
Total from investment operations $1.62 $2.32 $0.14
- --------------------------------------------------------- --------- ------ ------
Net asset value, end of period $17.59 $15.97 $13.65
- --------------------------------------------------------- --------- ------ ------
Total return (%) 10.14++ 17.00(#) 1.04++
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.28+ 2.33 2.35+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (1.42)+ (1.37) (1.39)+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 38 72 116
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $111 $79 $5
- -----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B 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 period ended August 31, 2003 would have been
16.91%.
+ 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
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
2/29/04 8/31/03 8/31/02*
CLASS 529C (UNAUDITED)
Net asset value, beginning of period $15.99 $13.67 $13.53
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.12) $(0.19) $(0.02)
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.74 2.51 0.16
- --------------------------------------------------------- --------- ------ ------
Total from investment operations $1.62 $2.32 $0.14
- --------------------------------------------------------- --------- ------ ------
Net asset value, end of period $17.61 $15.99 $13.67
- --------------------------------------------------------- --------- ------ ------
Total return (%) 10.13++ 16.97(#) 1.04++
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.28+ 2.30 2.35+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (1.40)+ (1.35) (1.38)+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 38 72 116
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $156 $58 $5
- -----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C 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 period ended August 31, 2003 would have been
16.88%.
+ 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 (unaudited)
- -------------------------------------------------------------------------------
(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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market prices where current market
prices are readily available, or the fund may fair value portfolio securities
under the direction of the Board of Trustees when a determination is made that
current market prices are not readily available. Equity securities in the
fund's portfolio for which market quotations are available are valued at the
last sale or official closing price as reported by an independent pricing
service 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. Equity securities traded over the counter are valued at the
last sales price traded each day as reported by an independent pricing
service, or to the extent there are no sales reported, such securities are
valued on the basis of quotations obtained from brokers and dealers. Equity
securities for which it is determined that current market prices are not
readily available will be fair valued under the direction of the Board of
Trustees. The fund may also fair value foreign equity securities in cases
where closing market prices are not readily available or are deemed not
reflective of readily available market prices. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the fund calculates its net
asset value (generally, the close of the NYSE) that may impact the value of
securities traded in these foreign markets. In these cases, the fund may
utilize information from an external vendor or other sources to adjust closing
market prices of foreign equity securities to reflect what it believes to be
the fair value of the securities as of the fund's valuation time. Because the
frequency of significant events is not predictable, fair valuation of foreign
equity securities may occur on a frequent basis. Short-term obligations with a
remaining maturity in excess of 60 days will be valued upon dealer-supplied
valuations. All other short-term obligations in the fund's portfolio are
valued at amortized cost, which constitutes market value as determined by the
Board of Trustees. 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.
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.
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. Included in other assets and
accrued expenses and other liabilities is $3,964 of Deferred Trustees'
Compensation.
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.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or 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 accounting principles generally accepted in the United States
of America. 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 six months ended February 29, 2004, the fund's custodian fees
were reduced by $4,623 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the fund
a portion of the commissions generated, to offset certain expenses of the fund.
For six months ended February 29, 2004, the fund's miscellaneous expenses were
reduced by $34,136 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 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
- --------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------
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 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.
As part of the settlement agreement with the New York Attorney General
concerning market timing and related matters, MFS has agreed to reduce the
fund's management fee to 0.65% of average daily net assets for the period
March 1, 2004 through February 28, 2009. During this time period, the Board of
Trustees will continue to review the appropriateness of all advisory fees in
accordance with their oversight responsibilities. After February 28, 2009 the
management fee will be determined in accordance with then existing review
policies approved by the Board of Trustees overseeing the fund.
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 retired Trustees and an
unfunded retirement benefit deferral plan for current Trustees. Included in
Trustees' compensation is a net decrease of $6,902 as a result of the change
in the fund's pension liability for current Trustees and a pension expense of
$1,129 for retired trustees for the six months ended February 29, 2004.
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 up to the following annual percentage rates 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%
----------------------------------------------------------
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of class R2 shares to MFS
for the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$49,939 and $913 for the six months ended February 29, 2004, 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 R1, Class R2, 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.75% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------------------------
Service Fee 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%
- --------------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.25% 0.75% 0.75%
- --------------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.50% 1.00% 1.00%
- --------------------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the six months ended February
29, 2004, amounted to:
CLASS A CLASS B CLASS C CLASS J CLASS R1 CLASS R2
Service Fee Retained by MFD $130,852 $4,145 $3,335 $-- $-- $--
- --------------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $164 $6 $25
- --------------------------------------------------------------------------------------------------------------------------
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 six months ended February 29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS J CLASS R1 CLASS R2
Total Distribution Plan 0.35% 1.00% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Total Distribution Plan 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 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 six months ended February 29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred Sales
Charges Imposed $6,866 $519,925 $1,539 $-- $--
- --------------------------------------------------------------------------------
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 - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, 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%, which amounted to $880,030 for the
six months ended February 29, 2004. Also included in shareholder servicing costs
are out-of-pocket expenses, paid to MFSC, which amounted to $311,591 for the six
months ended February 29, 2004, as well as other expenses paid to unaffiliated
vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$662,237,214 and $596,113,434, 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 $1,697,152,506
- ------------------------------------------------------------------------------
Gross unrealized appreciation $177,263,825
- ------------------------------------------------------------------------------
Gross unrealized depreciation (93,412,178)
- ------------------------------------------------------------------------------
Net unrealized appreciation $83,851,647
- ------------------------------------------------------------------------------
(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:
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 5,157,265 90,202,427 42,067,436 $608,306,358
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (4,963,073) (87,048,247) (53,503,806) (772,007,915)
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) 194,192 $3,154,180 (11,436,370) $(163,701,557)
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,663,578 $27,899,747 4,961,087 $69,388,591
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (3,478,617) (58,471,048) (9,331,086) (128,196,184)
- --------------------------------------------------------------------------------------------------------------
Net decrease (1,815,039) $(30,571,301) (4,369,999) $(58,807,593)
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 635,199 $10,635,738 1,052,437 $14,991,019
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (1,207,023) (20,408,287) (3,132,660) (43,273,762)
- --------------------------------------------------------------------------------------------------------------
Net decrease (571,824) $(9,772,549) (2,080,223) $(28,282,743)
- --------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 7,368,804 $130,910,010 8,744,706 $131,236,225
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (163,175) (2,889,618) (871,976) (12,561,146)
- --------------------------------------------------------------------------------------------------------------
Net increase 7,205,629 $128,020,392 7,872,730 $118,675,079
- --------------------------------------------------------------------------------------------------------------
CLASS J SHARES
Shares sold 67,585 $1,104,620 17,800 $257,229
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (62,254) (1,082,370) (45,778) (640,054)
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) 5,331 $22,250 (27,978) $(382,825)
- --------------------------------------------------------------------------------------------------------------
Six months ended Period ended
2/29/04 8/31/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 67,630 $1,225,908 14,585 $224,566
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (116) (2,230) (1,218) (17,232)
- --------------------------------------------------------------------------------------------------------------
Net increase 67,514 $1,223,678 13,367 $207,334
- --------------------------------------------------------------------------------------------------------------
Period ended
2/29/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 295.50 $5,020
- ------------------------------------------------------------------------
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 9,499 165,334 13,890 $204,517
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (1,251) (21,733) (620) (10,129)
- --------------------------------------------------------------------------------------------------------------
Net increase 8,248 $143,601 13,270 $194,388
- --------------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 1,411 $23,527 4,683 $64,857
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (24) (410) (122) (1,880)
- --------------------------------------------------------------------------------------------------------------
Net increase 1,387 $23,117 4,561 $62,977
- --------------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 5,285 $86,224 3,281 $45,803
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (101) (1,674) (17) (232)
- --------------------------------------------------------------------------------------------------------------
Net increase 5,184 $84,550 3,264 $45,571
- --------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
** For the period from the inception of Class R2 shares, October 31, 2003, through February 29, 2004.
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the six months ended February 29, 2004, was $5,423.
The fund had no borrowings during the period.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding regarding
disclosure of brokerage allocation practices in connection with fund sales.
Under the terms of the settlement, in which MFS neither admitted nor denied
any wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement and $50
million in penalty to certain MFS funds, pursuant to a plan to be approved by
an independent distribution consultant. The agreement with the SEC is
reflected in an order of the SEC. The settlement order states that MFS failed
to adequately disclose to the Boards of Trustees and to shareholders of the
MFS funds the specifics of its preferred arrangements with certain brokerage
firms selling MFS fund shares. The settlement order states that MFS had in
place policies designed to obtain best execution of all fund trades.
As part of the settlement, MFS also agreed to retain an independent compliance
consultant to review the completeness of its disclosure to fund trustees and
to fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial advisers who support the sale of fund
shares. The brokerage allocation practices which were the subject of this
proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the Securities and
Exchange Commission ("SEC"), the New York Attorney General ("NYAG") and the
Bureau of Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in certain
MFS fund prospectuses regarding market timing and related matters (the "February
Settlements"). These regulators alleged that prospectus language for certain MFS
funds was false and misleading because, although the prospectuses for those
funds in the regulators' view indicated that the funds prohibited market timing,
MFS did not limit trading activity in 11 domestic large cap stock, high grade
bond and money market funds. MFS' former Chief Executive Officer, John W.
Ballen, and former President, Kevin R. Parke, have also reached agreement with
the SEC (Messrs. Ballen and Parke resigned their director and officer positions
with MFS on February 13, 2004). Under the terms of the February Settlements, MFS
and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds offered
to retail investors ("Retail Funds"), which has been funded by MFS and of which
$50 million is characterized as a penalty. This pool will be distributed in
accordance with a methodology developed by an independent distribution
consultant in consultation with MFS and the Boards of Trustees of the Retail
Funds, and acceptable to the SEC. MFS has further agreed with the NYAG to reduce
its management fees in the aggregate amount of approximately $25 million
annually over the next five years, and not to increase certain management fees
during this period. MFS has also paid an administrative fine to NH in the amount
of $1 million, which will be used for investor education purposes (NH will
retain $250,000 and $750,000 will be contributed to the North American
Securities Administrators Association's Investor Protection Trust). In addition,
MFS and the Retail Funds will adopt certain governance changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as trustees
of all MFS funds, and Mr. Ballen resigned his position as President of all MFS
funds, effective February 6, 2004. Messrs. Ballen and Parke will not be
returning to MFS or the MFS funds after their suspensions.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS fund, or
(ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act of
1933 and the Securities Exchange Act of 1934, the Investment Company Act of 1940
and the Investment Advisers Act of 1940, the Employee Retirement Income Security
Act of 1974, as well as fiduciary duties and other violations of common law. The
lawsuits seek unspecified compensatory damages. Insofar as any of the actions is
appropriately brought derivatively on behalf of any of the MFS funds, any
recovery will inure to the benefit of the funds. The defendants are reviewing
the allegations of the multiple complaints and will respond appropriately.
Additional lawsuits based on similar allegations may be filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS
has established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the
funds, and will pay $50 million to compensate certain MFS funds based upon the
amount of brokerage commissions allocated in recognition of fund sales. It is
not clear whether these amounts will be sufficient to compensate shareholders
for all of the damage they allegedly sustained, whether certain shareholders
or putative class members may have additional claims to compensation, or
whether the damages that may be awarded in any of the actions will exceed
these amounts. In the event the MFS funds incur any losses, costs or expenses
in connection with such lawsuits, the Boards of Trustees of the affected funds
may pursue claims on behalf of such funds against any party that may have
liability to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- -----------------------------------------------------------------------------------------------------------
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
JOHN W. BALLEN(2)(5) (born 09/12/59) DAVID H. GUNNING(4) (born 05/30/42)
Trustee and President Trustee
Massachusetts Financial Services Company, Chief Cleveland-Cliffs Inc. (mining products and service
Executive Officer and Director (until February provider), Vice Chairman/Director (since April
2004) 2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
ROBERT J. MANNING(2)(7) (born 10/20/63) Electric Holdings, Inc. (welding equipment
Trustee manufacturer), Director; Southwest Gas Corporation
Massachusetts Financial Services Company, Chief (natural gas distribution company), Director
Executive Officer, President, Chief Investment
Officer and Director WILLIAM R. GUTOW (born 09/27/41)
Trustee
KEVIN R. PARKE(2)(5) (born 12/14/59) Private investor and real estate consultant;
Trustee Capitol Entertainment Management Company (video
Massachusetts Financial Services Company, franchise), Vice Chairman
President, Chief Investment Officer and Director
(until February 2004) AMY B. LANE(4) (born 02/08/53)
Trustee
ROBERT C. POZEN(2)(7) (born 08/08/46) Retired; Merrill Lynch & Co., Inc., Managing
Trustee Director, Investment Banking Group (1997 to
Massachusetts Financial Services Company, Chairman February 2001); Borders Group, Inc. (book and
(since February 2004); Harvard Law School music retailer), Director; Federal Realty
(education), John Olin Visiting Professor (since Investment Trust (real estate investment trust),
July 2002); Secretary of Economic Affairs, The Trustee
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice ABBY M. O'NEILL(3) (born 04/27/28)
Chairman (June 2000 to December 2001); Fidelity Trustee
Management & Research Company (investment Private investor; Rockefeller Financial Services,
adviser), President (March 1997 to July 2001); The Inc. (investment advisers), Chairman and Chief
Bank of New York (financial services), Director; Executive Officer
Bell Canada Enterprises (telecommunications),
Director; Telesat (satellite communications), LAWRENCE T. PERERA (born 06/23/35)
Director Trustee
Hemenway & Barnes (attorneys), Partner
JEFFREY L. SHAMES(2)(6) (born 06/02/55)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Chairman Trustee
(until February 2004) 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
J. ATWOOD IVES (born 05/01/36) investment trust), Director
Co-Chair
Private investor; KeySpan Corporation (energy J. DALE SHERRATT (born 09/23/38)
related services), Director; Eastern Enterprises Trustee
(diversified services company), Chairman, Trustee Insight Resources, Inc. (acquisition planning
and Chief Executive Officer (until November 2000) specialists), President; Wellfleet Investments
(investor in health care companies), Managing
WARD SMITH (born 09/13/30) General Partner (since 1993); Cambridge
Co-Chair Nutraceuticals (professional nutritional
Private investor products), Chief Executive Officer (until May
2001)
LAWRENCE H. COHN, M.D. (born 03/11/37)
Trustee ELAINE R. SMITH (born 04/25/46)
Brigham and Women's Hospital, Chief of Cardiac Trustee
Surgery; Harvard Medical School, Professor of Independent health care industry consultant
Surgery
(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.
(3) Retired December 31, 2003.
(4) Appointed Trustee on January 27, 2004.
(5) Resigned February 6, 2004.
(6) Resigned on February 13, 2004.
(7) Appointed Trustee on February 24, 2004.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN(1) (born 09/12/59) RICHARD M. HISEY (born 08/29/58)
Trustee and President Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Senior
Executive Officer and Director (until February Vice President (since July 2002); The Bank of New
2004) York, Senior Vice President (September 2000 to
July 2002); Lexington Global Asset Managers, Inc.,
JAMES R. BORDEWICK, JR. (born 03/06/59) Executive Vice President and Chief Financial
Assistant Secretary and Assistant Clerk Officer (prior to September 2000); Lexington
Massachusetts Financial Services Company, Senior Funds, Treasurer (prior to September 2000)
Vice President and Associate General Counsel
ROBERT J. MANNING(2) (born 10/20/63)
STEPHEN E. CAVAN (born 11/06/53) President
Secretary and Clerk Massachusetts Financial Services Company, Chief
Massachusetts Financial Services Company, Senior Executive Officer, President, Chief Investment
Vice President, General Counsel and Secretary Officer and Director
STEPHANIE A. DESISTO (born 10/01/53) ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers President
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus JAMES O. YOST (born 06/12/60)
Investment Management, Senior Vice President Assistant Treasurer
(prior to November 2002) Massachusetts Financial Services Company, Senior
Vice President
ROBERT R. FLAHERTY (born 09/18/63)
Assistant Treasurer
Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
(1) Resigned on February 6, 2004.
(2) Appointed President on February 6, 2004.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five
years thereafter to elect Trustees. Each Trustee and officer will hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Mr. Shames has served as a Trustee of the Trust continually since originally appointed until February 13,
2004. Messrs. Ives, Perera and Poorvu, and Ms. Smith, have served in their capacity as Trustee of the Trust
continuously since originally elected or appointed. Mr. Gutow has served as a Trustee of the Trust since
August 1, 2001. Messrs. Cohn, Sherratt and Smith, were elected by shareholders and have served as Trustees of
the Trust since January 1, 2002. Mr. Ballen was elected by shareholders and served as a Trustee from January
1, 2002, until February 6, 2004, and Mr. Parke served as a Trustee of the Trust from January 1, 2002, until
February 6, 2004. Ms. O'Neill retired on December 31, 2003. Mr. Gunning and Ms. Lane have served as Trustees
of the Trust since January 27, 2004, and Messrs. Manning and Pozen have served as Trustees of the Trust since
February 24, 2004.
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 109 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 PORTFOLIO MANAGER
Massachusetts Financial Services Company S. Irfan Ali
500 Boylston Street, Boston, MA
02116-3741 CUSTODIAN
State Street Bank and Trust Company
DISTRIBUTOR 225 Franklin Street, Boston, MA 02110
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116-3741
- -------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. The prospectus contains complete information on the fund's
investment objective(s), the risks associated with an investment in the fund,
the fees, charges and expenses involved, as well as other information about
the fund. The prospectus should be read carefully before investing.
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 and procedures 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 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
AGF-SEM-4/04 210M
MFS(R) Mutual Funds
SEMIANNUAL REPORT 2/29/04
MFS(R) RESEARCH GROWTH AND
INCOME 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 GROWTH AND INCOME FUND
The fund seeks to provide long-term growth of capital, current income, and
growth of income.
- -------------------------------------------------------------------------------
To view MFS' statement concerning regulatory issues affecting the mutual fund
industry and the firm, please visit mfs.com.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 9
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ----------------------------------------------------
FINANCIAL STATEMENTS 21
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 32
- ----------------------------------------------------
TRUSTEES AND OFFICERS 43
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 45
- ----------------------------------------------------
CONTACT INFORMATION 46
- ----------------------------------------------------
ASSET ALLOCATION 47
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
As the firm's new Chief Executive Officer, I want to thank you for your
continued trust in MFS and tell you about the series of actions we have taken
since our recent settlements with the regulators. These actions are designed
to enhance the governance structure of the MFS funds, tighten our business
practices, and strengthen the management team at MFS.
In early February, Robert Pozen joined MFS as non-executive Chairman. A
seasoned veteran of the mutual fund industry, Bob has held prior positions as
President of Fidelity Management & Research Company, as Associate General
Counsel of the Securities and Exchange Commission, and as a visiting professor
at Harvard Law School.
In an effort to develop and implement policies that we believe will set a new
standard in regulatory compliance, MFS has hired two new senior executives.
Jeffrey Carp is joining us as General Counsel with responsibility for all of
our legal affairs. Previously he was a senior partner with the law firm of
Hale and Dorr LLP. Also joining MFS in the new position of Executive Vice
President of Regulatory Affairs is Maria Dwyer, who returned to the firm after
serving as a senior executive at Fidelity. At MFS, Maria is in charge of
compliance, internal audit, and fund treasury.
In the area of governance, we have taken steps to enhance the independence of
our funds' boards of trustees to better protect the interests of shareholders.
We have independent board chairs and at least 75% of the trustees are
independent. The trustees will appoint not only their own counsel but also an
independent compliance officer. This officer will assist the boards and their
committees in monitoring the MFS funds' compliance with federal and state
regulations.
In February, MFS reached agreements with federal and state regulators to
settle their administrative proceedings against the firm and two senior
executives in connection with market timing and related issues. Under the
terms of the settlements, we agreed to pay $225 million to compensate affected
retail fund shareholders. The $225 million will be distributed in accordance
with a distribution plan developed by an independent consultant.
We have further agreed with state regulators to reduce management fees on
certain funds we advise by approximately $25 million annually over the next
five years and to pay an administrative fine of $1 million, which will be used
for the purpose of investor education. We have introduced a set of policies
designed to protect the MFS funds and MFS fund shareholders from market timing
abuses. By July, all MFS retail funds, except money market funds, will have a
2% redemption fee on short-term trades. Our global, international, high-yield,
mid- and small-cap funds will impose the 2% fee on redemptions or exchanges of
fund shares made within 30 calendar days of a share purchase. For all other MFS
funds, except money market funds, the 2% fee will be imposed on redemptions or
exchanges made within 5 business days of a share purchase. See the fund
prospectus for more information.
We continue to use fair value pricing, a strategy that minimizes the potential
for investors to take advantage of "stale" prices. These can occur, as one
example, when funds own foreign securities whose prices close on overseas
exchanges in different time zones. At the same time, we enhanced our
monitoring of excessive trading. We did so by increasing our staff and
updating our computer systems to improve our ability to detect excessive
trading in our funds. Finally, we are supporting industry efforts to establish
a "hard" 4 p.m. close on all trading, which would prevent the possibility of
late trading.
In March, MFS reached a second settlement with the SEC under an administrative
proceeding resolving the SEC's investigation into how we disclosed brokerage
allocation practices in connection with fund sales. According to the
settlement order, we did not effectively disclose the potential conflict of
interest that may arise from these arrangements.
Under the terms of the settlement, MFS has agreed to pay one dollar in
disgorgement and $50 million in penalty to MFS fund shareholders. The
settlement noted that MFS had policies in place designed to obtain best
execution of all trades of securities within MFS portfolios.
This past November, MFS eliminated the above mentioned practice of directing
brokerage commissions to certain firms in recognition of fund sales.
Additionally, we announced in March that we would ban the use of soft dollars
to acquire third-party securities research and market data. Soft dollars are
permitted under federal securities laws. In fact, it is a common industry
practice to use a portion of the brokerage commissions to pay for certain
research and execution products and services that are provided to asset
managers. MFS will now pay cash out of its own pocket for third-party research
and market data.
MFS continues to be financially strong, with more than U.S. $140 billion (as
of 12/31/03) in assets under management, which continued to be stable during
the first quarter of 2004. We also have the full support of our parent
company, Sun Life Financial, an internationally diversified financial services
firm that manages more than U.S. $269 billion (as of 12/31/03).
We chose to settle these two proceedings with the SEC so we could concentrate
on serving our fund shareholders. As Chief Investment Officer, my focus is on
ensuring that our portfolio teams work closely together and take full
advantage of all the resources available to them to deliver the best possible
investment performance.
As the inventor of the open-end mutual fund in America in 1924, MFS has a
strong tradition and culture of innovation. By strengthening our business and
governance practices, we believe we have an unprecedented opportunity to set a
new standard in the mutual fund industry.
As I look ahead, I do so with confidence. The collaboration among MFS
employees, many of whom have worked at the firm for their entire careers,
continues as we remain singularly dedicated to our clients. It has been our
sincere privilege to serve you, and we thank you for the confidence that you
have shown in MFS.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer
MFS Investment Management(R)
March 15, 2004
Note to Shareholders: On February 6, 2004, Jeffrey L. Shames retired as
Chairman of MFS. Robert Pozen was named as non-executive Chairman. Also,
on February 6, 2004, Robert J. Manning was appointed Chief Executive Officer,
President, and Chief Investment Officer.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
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MFS ORIGINAL RESEARCH(R)
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THE MFS(R) DIFFERENCE
For 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 turnaround in global stock markets that began in the spring of 2003
continued for most of the six-month period ended February 29, 2004. The release
of increasingly positive economic numbers as the period progressed, particularly
with regard to corporate earnings and GDP (gross domestic product) growth,
helped drive the equity rally. By late 2003, corporate capital spending, which
had been weak for some time, had also begun to accelerate. Another driver of the
equity rally, in our view, was the U.S. Federal Reserve Board's decision to
leave interest rates at a four-decade low throughout the period. While energy
prices rose late in the period, core inflation - excluding volatile food and
energy prices - remained very low relative to historical averages.
- -----------------------------------------------
TOP 5 SECTOR WEIGHTINGS
AS OF 2/29/04
FINANCIAL SERVICES 20.9%
- -----------------------------------------------
TECHNOLOGY 15.7%
- -----------------------------------------------
HEALTH CARE 12.7%
- -----------------------------------------------
CONSUMER STAPLES 8.0%
- -----------------------------------------------
UTILITIES & COMMUNICATIONS 7.8%
- -----------------------------------------------
The portfolio is actively managed, and current
holdings may be different.
- -----------------------------------------------
DETRACTORS FROM PERFORMANCE
Stock selection in the health care and technology sectors plus the fund's cash
position took away from the fund's relative performance for the period ended
February 29, 2004. In health care, our position in large pharmaceutical company
Wyeth significantly underperformed the broad market. We believe that Wyeth's
stock price declined because of ongoing litigation over the company's diet drug,
and disappointing results from some of the firm's new products. In contrast, we
did not own Pfizer stock, which outperformed the broad market. Pfizer's stock
rebounded from depressed levels during the period because of the company's
future new product flow.
Other health care stocks that detracted from performance were Tenet Healthcare
and Cyberonics. Tenet continued to struggle with setbacks stemming from its
Medicare billing practices that surfaced in 2003, leading its stock price to
decline significantly during the period. Neurostimulator manufacturer
Cyberonics, also in the health care sector, experienced delays in potential new
product approval by the U.S. Food and Drug Administration. In our opinion, the
company was distracted by the delays and, as a consequence, its core business
deteriorated.
Throughout the period, the fund maintained a small allocation to short-term cash
equivalent securities, which are used to purchase new securities and to provide
liquidity. When the stock market rose, that cash position detracted from fund
performance relative to the fund's benchmark, the Standard & Poor's 500 Stock
Index, which holds no cash position.
The fund's two biggest disappointments in the technology sector were electronic
software distributor Digital River and digital wireless communications maker
QUALCOMM. We owned Digital River because we viewed the company as a leader in
software distribution. In our opinion, the stock's performance was hurt by the
company's disappointing earnings guidance issued for first quarter 2004. That
announcement was somewhat surprising because it followed strong third- and
fourth-quarter earnings gains in 2003. We did not own QUALCOMM and thus missed
the company's strong performance that we attributed to the opportunities
presented by the company's third generation (3G) wireless products.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the financial services sector and in utilities and
communications made solid contributions to relative fund returns. In our
experience, financial stocks have historically tended to do well in an economic
recovery; performance from the group throughout the reporting period was no
exception. The standout among the fund's financial holdings was FleetBoston.
Fleet's stock price rose sharply when Bank of America announced its $47 billion
takeover bid for Fleet. The fund also received solid performance from insurer
Ace Limited. The company saw its stock price rebound in the latter half of 2003
from depressed valuations earlier in the year. Later in 2003, the firm had
several quarters when income from insurance premiums rose and its claims costs
declined. The resulting revenue increases gave an added lift to the value of
the company's stock.
Wireless companies within the utilities and communications group generated
strong returns during the period. A number of our wireless holdings were among
the fund's top contributors, including Sprint Corporation PCS, Andrew
Corporation, and AT&T Wireless. We believe results from the group were fuelled
by a number of factors, including increased capital spending on the part of
telecommunications companies and the possibility for industry consolidation.
In our opinion, the wireless industry was generally so strong that even that
group's suppliers, such as semiconductor manufacturer PMC Sierra and QUALCOMM,
did well. Both PMC Sierra and AT&T Wireless outperformed the broad market and
were sold when they reached our price targets. As noted earlier, the fund did
not own QUALCOMM.
Other stocks that contributed to relative performance included Altria
(formerly Philip Morris) and CTI Molecular Imaging. In our view, Altria
continued to benefit from decreased investor concerns about litigation against
the company. CTI, which manufactures PET (positron emission tomography)
scanners, rebounded from lows encountered in the third quarter of 2003.
The fund's underweighting in Wal-Mart helped relative returns when the company
underperformed the broad market. The fund sold its Wal-Mart holdings because
of disappointing results. We avoided the poor performance from Merck stock,
which we believe was adversely affected by potential patent challenges,
competition from generic drug companies, and a weak pipeline of drugs in
development.
Respectfully,
/s/ David Antonelli
David 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 views expressed in this report are those of the Director of Global Equity
Research only through the end of the period of the report as stated on the
cover and do not necessarily reflect the views of MFS or any other person in
the MFS organization. These views are subject to change at any time based on
market and other conditions, and MFS disclaims any responsibility to update
such views. These views may not be relied upon as investment advice or an
indication of trading intent on behalf of any MFS Fund. References to specific
securities are not recommendations of such securities, and may not be
representative of any MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment- related news.
o From Week in Review, link to MFS Global Investment Perspective for our current
view of the world.
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- ------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/29/04
- ------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as average annual total returns for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including the reinvestment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/2/1996 -- 40.23% -0.96% 0.47% 9.08%
- ------------------------------------------------------------------------------
B 1/2/1997 -- 39.40% -1.59% -0.19% 8.37%
- ------------------------------------------------------------------------------
C 1/2/1997 -- 39.23% -1.62% -0.22% 8.34%
- ------------------------------------------------------------------------------
I 1/2/1997 -- 40.73% -0.62% 0.80% 9.40%
- ------------------------------------------------------------------------------
R1 12/31/2002 -- 39.96% -1.02% 0.43% 9.05%
- ------------------------------------------------------------------------------
R2 10/31/2003 -- 40.07% -1.00% 0.45% 9.06%
- ------------------------------------------------------------------------------
Comparative benchmarks
- --------------------
Average annual
- --------------------
- ------------------------------------------------------------------------------
Average large-cap core fund+ 12.49% 34.46% -3.53% -1.35% 7.45%
- ------------------------------------------------------------------------------
Standard & Poor's 500
Stock Index# 14.59% 38.50% -1.04% -0.12% 9.61%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
- -----------------
Average annual
with sales charge
- -----------------
Share
class 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A -- 32.17% -2.89% -0.71% 8.29%
- ------------------------------------------------------------------------------
B -- 35.40% -2.57% -0.56% 8.37%
- ------------------------------------------------------------------------------
C -- 38.23% -1.62% -0.22% 8.34%
- ------------------------------------------------------------------------------
I, R1 and R2 class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- --------------------
Cumlative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 14.03% 40.23% -2.85% 2.36% 103.14%
- ------------------------------------------------------------------------------
B 13.65% 39.40% -4.70% -0.97% 92.69%
- ------------------------------------------------------------------------------
C 13.63% 39.23% -4.77% -1.10% 92.25%
- ------------------------------------------------------------------------------
I 14.21% 40.73% -1.86% 4.05% 108.04%
- ------------------------------------------------------------------------------
R1 13.90% 39.96% -3.03% 2.17% 102.76%
- ------------------------------------------------------------------------------
R2 13.90% 40.07% -2.96% 2.25% 102.91%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through February 29, 2004. 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
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 R1 and R2 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.
Performance results reflect any applicable subsidies and waivers in effect
during the periods shown. Without such subsidies and waivers the fund's
performance would be less favorable. Please see the prospectus and financial
statements for details.
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 (unaudited) - 2/29/04
- --------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 101.9%
- --------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- --------------------------------------------------------------------------------------------
U.S. Stocks - 94.8%
- --------------------------------------------------------------------------------------------
Aerospace - 1.8%
- --------------------------------------------------------------------------------------------
Alliant Techsystems, Inc.* 5,120 $292,352
- --------------------------------------------------------------------------------------------
Lockheed Martin Corp. 30,940 1,431,903
- --------------------------------------------------------------------------------------------
Northrop Grumman Corp. 13,110 1,325,552
- --------------------------------------------------------------------------------------------
$3,049,807
- --------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.6%
- --------------------------------------------------------------------------------------------
Anheuser-Busch Cos., Inc. 18,830 $1,002,133
- --------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.3%
- --------------------------------------------------------------------------------------------
Reebok International Ltd. 13,900 $553,359
- --------------------------------------------------------------------------------------------
Automotive - 0.5%
- --------------------------------------------------------------------------------------------
Harley-Davidson, Inc. 10,100 $536,512
- --------------------------------------------------------------------------------------------
TRW Automotive Holdings Corp.^* 12,200 305,000
- --------------------------------------------------------------------------------------------
$841,512
- --------------------------------------------------------------------------------------------
Banks & Credit Companies - 12.2%
- --------------------------------------------------------------------------------------------
American Express Co. 21,000 $1,121,820
- --------------------------------------------------------------------------------------------
Bank of America Corp. 29,430 2,410,905
- --------------------------------------------------------------------------------------------
Bank One Corp. 39,600 2,137,608
- --------------------------------------------------------------------------------------------
Banknorth Group, Inc. 19,130 637,603
- --------------------------------------------------------------------------------------------
Citigroup, Inc. 108,908 5,473,716
- --------------------------------------------------------------------------------------------
First Tennessee National Corp. 19,500 901,680
- --------------------------------------------------------------------------------------------
FleetBoston Financial Corp. 59,524 2,680,366
- --------------------------------------------------------------------------------------------
Freddie Mac 20,070 1,242,734
- --------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co. 18,400 754,768
- --------------------------------------------------------------------------------------------
MBNA Corp. 5,690 155,508
- --------------------------------------------------------------------------------------------
Mellon Financial Corp. 30,570 989,857
- --------------------------------------------------------------------------------------------
SunTrust Banks, Inc. 27,330 1,976,232
- --------------------------------------------------------------------------------------------
$20,482,797
- --------------------------------------------------------------------------------------------
Biotechnology - 1.9%
- --------------------------------------------------------------------------------------------
Genzyme Corp.* 38,100 $1,934,718
- --------------------------------------------------------------------------------------------
Gilead Sciences, Inc.* 13,700 742,677
- --------------------------------------------------------------------------------------------
MedImmune, Inc. 21,500 552,335
- --------------------------------------------------------------------------------------------
$3,229,730
- --------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.0%
- --------------------------------------------------------------------------------------------
Comcast Holdings Corp., "A"* 38,700 $1,162,548
- --------------------------------------------------------------------------------------------
Cumulus Media, Inc.* 12,700 252,730
- --------------------------------------------------------------------------------------------
EchoStar Communications Corp., "A"* 49,690 1,794,803
- --------------------------------------------------------------------------------------------
LodgeNet Entertainment Corp.* 10,000 190,000
- --------------------------------------------------------------------------------------------
$3,400,081
- --------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.8%
- --------------------------------------------------------------------------------------------
E*TRADE Financial Corp.* 46,700 $668,277
- --------------------------------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc. 33,600 894,432
- --------------------------------------------------------------------------------------------
Janus Capital Group, Inc. 45,300 775,536
- --------------------------------------------------------------------------------------------
Legg Mason, Inc. 14,500 1,367,930
- --------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. 10,500 910,455
- --------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 29,510 1,806,307
- --------------------------------------------------------------------------------------------
$6,422,937
- --------------------------------------------------------------------------------------------
Business Services - 1.0%
- --------------------------------------------------------------------------------------------
Affiliated Computer Services, Inc.* 9,900 $477,774
- --------------------------------------------------------------------------------------------
DST Systems, Inc.* 6,960 311,530
- --------------------------------------------------------------------------------------------
Fiserv, Inc.* 15,800 610,038
- --------------------------------------------------------------------------------------------
Getty Images, Inc.* 4,700 239,512
- --------------------------------------------------------------------------------------------
$1,638,854
- --------------------------------------------------------------------------------------------
Chemicals - 1.8%
- --------------------------------------------------------------------------------------------
Air Products & Chemicals, Inc. 7,880 $380,131
- --------------------------------------------------------------------------------------------
Dow Chemical Co. 10,530 457,739
- --------------------------------------------------------------------------------------------
Lyondell Chemical Co. 98,340 1,751,436
- --------------------------------------------------------------------------------------------
Monsanto Co. 11,500 379,960
- --------------------------------------------------------------------------------------------
$2,969,266
- --------------------------------------------------------------------------------------------
Computer Software - 4.4%
- --------------------------------------------------------------------------------------------
Akamai Technologies, Inc.^* 36,200 $543,000
- --------------------------------------------------------------------------------------------
Manhattan Associates, Inc.^* 28,900 828,274
- --------------------------------------------------------------------------------------------
Microsoft Corp. 166,990 4,425,235
- --------------------------------------------------------------------------------------------
Network Associates, Inc. 92,480 1,622,099
- --------------------------------------------------------------------------------------------
$7,418,608
- --------------------------------------------------------------------------------------------
Computer Software - Systems - 3.1%
- --------------------------------------------------------------------------------------------
Hewlett-Packard Co. 95,000 $2,157,450
- --------------------------------------------------------------------------------------------
International Business Machines Corp. 31,360 3,026,240
- --------------------------------------------------------------------------------------------
$5,183,690
- --------------------------------------------------------------------------------------------
Construction - 0.4%
- --------------------------------------------------------------------------------------------
Eagle Materials, Inc.^* 10,100 $589,335
- --------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.5%
- --------------------------------------------------------------------------------------------
Career Education Corp.* 12,820 $640,872
- --------------------------------------------------------------------------------------------
Colgate-Palmolive Co. 35,000 1,940,750
- --------------------------------------------------------------------------------------------
Corinthian Colleges, Inc.* 9,200 553,380
- --------------------------------------------------------------------------------------------
Playtex Products, Inc.^* 214,200 1,353,744
- --------------------------------------------------------------------------------------------
Procter & Gamble Co. 12,970 1,329,554
- --------------------------------------------------------------------------------------------
$5,818,300
- --------------------------------------------------------------------------------------------
Containers - 0.7%
- --------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.* 64,360 $1,194,522
- --------------------------------------------------------------------------------------------
Electrical Equipment - 4.5%
- --------------------------------------------------------------------------------------------
American Standard Cos., Inc.* 890 $96,974
- --------------------------------------------------------------------------------------------
Black & Decker Corp. 8,400 432,936
- --------------------------------------------------------------------------------------------
General Electric Co. 170,710 5,551,489
- --------------------------------------------------------------------------------------------
Tyco International Ltd. 49,270 1,407,644
- --------------------------------------------------------------------------------------------
$7,489,043
- --------------------------------------------------------------------------------------------
Electronics - 4.1%
- --------------------------------------------------------------------------------------------
Amphenol Corp., "A"* 6,400 $395,840
- --------------------------------------------------------------------------------------------
Analog Devices, Inc. 72,680 3,626,732
- --------------------------------------------------------------------------------------------
Cymer, Inc.* 19,000 732,260
- --------------------------------------------------------------------------------------------
Intel Corp. 53,000 1,549,190
- --------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 11,690 375,833
- --------------------------------------------------------------------------------------------
Vishay Intertechnology, Inc.^ 10,300 231,853
- --------------------------------------------------------------------------------------------
$6,911,708
- --------------------------------------------------------------------------------------------
Energy - Independent - 0.7%
- --------------------------------------------------------------------------------------------
Unocal Corp. 32,400 $1,231,200
- --------------------------------------------------------------------------------------------
Energy - Integrated - 2.2%
- --------------------------------------------------------------------------------------------
Amerada Hess Corp. 15,500 $997,425
- --------------------------------------------------------------------------------------------
Exxon Mobil Corp. 64,772 2,731,435
- --------------------------------------------------------------------------------------------
$3,728,860
- --------------------------------------------------------------------------------------------
Entertainment - 1.2%
- --------------------------------------------------------------------------------------------
Clear Channel Communications, Inc. 32,800 $1,411,712
- --------------------------------------------------------------------------------------------
Fox Entertainment Group, Inc.* 23,000 667,460
- --------------------------------------------------------------------------------------------
$2,079,172
- --------------------------------------------------------------------------------------------
Food & Drug Stores - 1.2%
- --------------------------------------------------------------------------------------------
CVS Corp. 26,600 $997,500
- --------------------------------------------------------------------------------------------
Rite Aid Corp.* 189,000 1,054,620
- --------------------------------------------------------------------------------------------
$2,052,120
- --------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 2.4%
- --------------------------------------------------------------------------------------------
Archer Daniels Midland Co. 17,800 $306,160
- --------------------------------------------------------------------------------------------
General Mills, Inc. 9,000 413,820
- --------------------------------------------------------------------------------------------
PepsiCo, Inc. 63,939 3,318,434
- --------------------------------------------------------------------------------------------
$4,038,414
- --------------------------------------------------------------------------------------------
Furniture & Appliances - 0.2%
- --------------------------------------------------------------------------------------------
Furniture Brands International, Inc. 12,400 $407,340
- --------------------------------------------------------------------------------------------
Gaming & Lodging - 0.3%
- --------------------------------------------------------------------------------------------
Carnival Corp. 11,000 $488,070
- --------------------------------------------------------------------------------------------
General Merchandise - 3.6%
- --------------------------------------------------------------------------------------------
Kohl's Corp.* 80,900 $4,166,350
- --------------------------------------------------------------------------------------------
Target Corp. 41,330 1,816,867
- --------------------------------------------------------------------------------------------
$5,983,217
- --------------------------------------------------------------------------------------------
Insurance - 3.7%
- --------------------------------------------------------------------------------------------
American International Group, Inc. 50,000 $3,700,000
- --------------------------------------------------------------------------------------------
Chubb Corp. 7,300 518,154
- --------------------------------------------------------------------------------------------
MetLife, Inc. 34,010 1,195,451
- --------------------------------------------------------------------------------------------
UNUMProvident 50,500 748,410
- --------------------------------------------------------------------------------------------
$6,162,015
- --------------------------------------------------------------------------------------------
Internet - 0.7%
- --------------------------------------------------------------------------------------------
Digital River, Inc.^* 36,900 $807,741
- --------------------------------------------------------------------------------------------
eBay, Inc.* 5,100 351,186
- --------------------------------------------------------------------------------------------
$1,158,927
- --------------------------------------------------------------------------------------------
Leisure & Toys - 0.5%
- --------------------------------------------------------------------------------------------
Hasbro, Inc. 14,000 $306,180
- --------------------------------------------------------------------------------------------
WMS Industries, Inc.^* 22,700 603,139
- --------------------------------------------------------------------------------------------
$909,319
- --------------------------------------------------------------------------------------------
Machinery & Tools - 0.5%
- --------------------------------------------------------------------------------------------
Cummins, Inc. 4,900 $242,060
- --------------------------------------------------------------------------------------------
Deere & Co. 4,520 290,320
- --------------------------------------------------------------------------------------------
Eaton Corp. 3,800 222,452
- --------------------------------------------------------------------------------------------
$754,832
- --------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.5%
- --------------------------------------------------------------------------------------------
Apria Healthcare Group, Inc.* 2,900 $90,654
- --------------------------------------------------------------------------------------------
Cardinal Health, Inc. 8,500 554,455
- --------------------------------------------------------------------------------------------
Lincare Holdings, Inc.* 3,600 116,424
- --------------------------------------------------------------------------------------------
Odyssey HealthCare, Inc.* 10,300 223,510
- --------------------------------------------------------------------------------------------
Tenet Healthcare Corp.* 123,300 1,482,066
- --------------------------------------------------------------------------------------------
$2,467,109
- --------------------------------------------------------------------------------------------
Medical Equipment - 2.2%
- --------------------------------------------------------------------------------------------
Aspect Medical Systems, Inc.^* 51,500 $896,100
- --------------------------------------------------------------------------------------------
CTI Molecular Imaging, Inc.* 100,000 1,700,000
- --------------------------------------------------------------------------------------------
Cyberonics, Inc.^* 48,100 1,174,602
- --------------------------------------------------------------------------------------------
$3,770,702
- --------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.4%
- --------------------------------------------------------------------------------------------
Southern Union Co.^ 34,600 $671,932
- --------------------------------------------------------------------------------------------
Oil Services - 0.7%
- --------------------------------------------------------------------------------------------
Cooper Cameron Corp.* 2,200 $97,284
- --------------------------------------------------------------------------------------------
GlobalSantaFe Corp. 20,372 600,974
- --------------------------------------------------------------------------------------------
Smith International, Inc.* 9,960 504,673
- --------------------------------------------------------------------------------------------
$1,202,931
- --------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.0%
- --------------------------------------------------------------------------------------------
Dell, Inc.* 44,420 $1,450,313
- --------------------------------------------------------------------------------------------
Solectron Corp. 29,200 186,588
- --------------------------------------------------------------------------------------------
$1,636,901
- --------------------------------------------------------------------------------------------
Pharmaceuticals - 7.3%
- --------------------------------------------------------------------------------------------
Abbott Laboratories 33,700 $1,442,360
- --------------------------------------------------------------------------------------------
Johnson & Johnson 115,800 6,242,778
- --------------------------------------------------------------------------------------------
Schering-Plough Corp. 87,700 1,575,092
- --------------------------------------------------------------------------------------------
Wyeth 78,300 3,092,850
- --------------------------------------------------------------------------------------------
$12,353,080
- --------------------------------------------------------------------------------------------
Pollution Control - 0.2%
- --------------------------------------------------------------------------------------------
Waste Management, Inc. 10,930 $311,505
- --------------------------------------------------------------------------------------------
Printing & Publishing - 0.6%
- --------------------------------------------------------------------------------------------
Lamar Advertising Co.* 4,880 $193,736
- --------------------------------------------------------------------------------------------
New York Times Co. 18,620 849,817
- --------------------------------------------------------------------------------------------
$1,043,553
- --------------------------------------------------------------------------------------------
Railroads - 0.4%
- --------------------------------------------------------------------------------------------
Union Pacific Corp. 10,540 $670,766
- --------------------------------------------------------------------------------------------
Real Estate - 0.4%
- --------------------------------------------------------------------------------------------
American Financial Realty Trust 20,500 $374,125
- --------------------------------------------------------------------------------------------
Boston Properties, Inc. 6,400 327,872
- --------------------------------------------------------------------------------------------
$701,997
- --------------------------------------------------------------------------------------------
Restaurants - 0.5%
- --------------------------------------------------------------------------------------------
McDonald's Corp. 23,300 $659,390
- --------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 4,140 200,335
- --------------------------------------------------------------------------------------------
$859,725
- --------------------------------------------------------------------------------------------
Specialty Chemicals - 0.7%
- --------------------------------------------------------------------------------------------
Delta & Pine Land Co.^ 6,800 $173,400
- --------------------------------------------------------------------------------------------
Georgia Gulf Corp. 36,700 998,607
- --------------------------------------------------------------------------------------------
$1,172,007
- --------------------------------------------------------------------------------------------
Specialty Stores - 2.7%
- --------------------------------------------------------------------------------------------
Circuit City Stores, Inc. 82,600 $923,468
- --------------------------------------------------------------------------------------------
Home Depot, Inc. 47,820 1,736,344
- --------------------------------------------------------------------------------------------
Hot Topic, Inc.* 31,960 927,799
- --------------------------------------------------------------------------------------------
TJX Cos., Inc. 38,400 904,320
- --------------------------------------------------------------------------------------------
$4,491,931
- --------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.2%
- --------------------------------------------------------------------------------------------
Andrew Corp.* 76,400 $1,361,448
- --------------------------------------------------------------------------------------------
SpectraSite, Inc.* 24,960 913,536
- --------------------------------------------------------------------------------------------
Sprint Corp.* 159,200 1,432,800
- --------------------------------------------------------------------------------------------
$3,707,784
- --------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.9%
- --------------------------------------------------------------------------------------------
ADTRAN, Inc. 22,500 $732,600
- --------------------------------------------------------------------------------------------
At Road, Inc.^* 20,600 246,170
- --------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 86,260 1,992,606
- --------------------------------------------------------------------------------------------
Harmonic, Inc.^* 22,900 280,296
- --------------------------------------------------------------------------------------------
$3,251,672
- --------------------------------------------------------------------------------------------
Telephone Services - 2.2%
- --------------------------------------------------------------------------------------------
IDT Corp.^* 35,200 $730,400
- --------------------------------------------------------------------------------------------
Sprint Corp. (PCS Group) 29,100 515,943
- --------------------------------------------------------------------------------------------
Verizon Communications, Inc. 65,240 2,500,649
- --------------------------------------------------------------------------------------------
$3,746,992
- --------------------------------------------------------------------------------------------
Tobacco - 2.4%
- --------------------------------------------------------------------------------------------
Altria Group, Inc. 61,960 $3,565,798
- --------------------------------------------------------------------------------------------
Loews Corp. 17,600 500,368
- --------------------------------------------------------------------------------------------
$4,066,166
- --------------------------------------------------------------------------------------------
Trucking - 1.2%
- --------------------------------------------------------------------------------------------
United Parcel Service, Inc. 17,210 $1,215,542
- --------------------------------------------------------------------------------------------
Werner Enterprises, Inc. 38,250 729,428
- --------------------------------------------------------------------------------------------
$1,944,970
- --------------------------------------------------------------------------------------------
Utilities - Electric - 2.5%
- --------------------------------------------------------------------------------------------
Dominion Resources, Inc. 13,990 $878,992
- --------------------------------------------------------------------------------------------
PG&E Corp.* 41,600 1,171,872
- --------------------------------------------------------------------------------------------
PPL Corp. 23,900 1,112,067
- --------------------------------------------------------------------------------------------
Public Service Enterprise Group, Inc. 21,930 1,033,780
- --------------------------------------------------------------------------------------------
$4,196,711
- --------------------------------------------------------------------------------------------
Total U.S. Stocks $159,457,602
- --------------------------------------------------------------------------------------------
Foreign Stocks - 7.1%
- --------------------------------------------------------------------------------------------
Bermuda - 2.0%
- --------------------------------------------------------------------------------------------
Accenture Ltd., "A" (Business Services)* 30,540 $705,474
- --------------------------------------------------------------------------------------------
Ace Ltd. (Insurance) 45,350 2,038,936
- --------------------------------------------------------------------------------------------
Ingersoll-Rand Co. Ltd. (Machinery & Tools) 6,000 398,880
- --------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. (Electronics)* 6,800 309,604
- --------------------------------------------------------------------------------------------
$3,452,894
- --------------------------------------------------------------------------------------------
Canada - 2.1%
- --------------------------------------------------------------------------------------------
ATI Technologies, Inc. (Personal Computers &
Peripherals)^* 53,700 $836,109
- --------------------------------------------------------------------------------------------
EnCana Corp. (Energy - Independent) 42,440 1,831,614
- --------------------------------------------------------------------------------------------
Hydrogenics Corp. (Automotive)^* 30,600 197,064
- --------------------------------------------------------------------------------------------
Magna International, Inc. (Automotive) 7,500 595,500
- --------------------------------------------------------------------------------------------
$3,460,287
- --------------------------------------------------------------------------------------------
Cayman Islands - 0.3%
- --------------------------------------------------------------------------------------------
Transocean, Inc. (Oil Services)* 19,100 $563,068
- --------------------------------------------------------------------------------------------
Hong Kong - 0.1%
- --------------------------------------------------------------------------------------------
Radica Games Ltd. (Gaming & Lodging)^ 13,100 $116,328
- --------------------------------------------------------------------------------------------
Singapore - 0.2%
- --------------------------------------------------------------------------------------------
Flextronics International Ltd. (Personal Computers &
Peripherals)* 14,630 $264,803
- --------------------------------------------------------------------------------------------
United Kingdom - 2.4%
- --------------------------------------------------------------------------------------------
BHP Billiton PLC (Metals & Mining) 125,000 $1,147,964
- --------------------------------------------------------------------------------------------
BP PLC (Energy - Integrated) 236,800 1,905,066
- --------------------------------------------------------------------------------------------
Vodafone Group PLC (Telecommunications - Wireless) 41,613 1,039,076
- --------------------------------------------------------------------------------------------
$4,092,106
- --------------------------------------------------------------------------------------------
Total Foreign Stocks $11,949,486
- --------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $148,224,716) $171,407,088
- --------------------------------------------------------------------------------------------
Short-Term Obligations - 0.9%
- --------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- --------------------------------------------------------------------------------------------
General Electric Capital Corp., due 3/01/04,
at Amortized Cost $1,528 $1,528,000
- --------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 5.2%
- --------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- --------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Identified Cost 8,721,031 $8,721,031
- --------------------------------------------------------------------------------------------
Repurchase Agreements - 3.1%
- --------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- --------------------------------------------------------------------------------------------
Merrill Lynch, dated 2/27/04, due 3/01/04, total to be
received $5,207,447 (secured by various U.S. Treasury
and Federal Agency obligations in a jointly traded
account), at Cost $5,207 $5,207,000
- --------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $163,680,747) $186,863,119
- --------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (11.1)% (18,656,490)
- --------------------------------------------------------------------------------------------
Net Assets - 100.0% $168,206,629
- --------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
See notes to financial statements.
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/29/04
ASSETS
Investments, at value, including $8,502,557 of securities
on loan (identified cost, $163,680,747) $186,863,119
- --------------------------------------------------------------------------------------------------
Cash 391
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 1,722,662
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 122,947
- --------------------------------------------------------------------------------------------------
Interest and dividends receivable 214,730
- --------------------------------------------------------------------------------------------------
Other assets 2,037
- --------------------------------------------------------------------------------------------------
Total assets $188,925,886
- --------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $2,281,163
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 9,609,867
- --------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 8,721,031
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 9,407
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 2,120
- --------------------------------------------------------------------------------------------------
Distribution and service fee 10,496
- --------------------------------------------------------------------------------------------------
Administrative fee 253
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 84,920
- --------------------------------------------------------------------------------------------------
Total liabilities $20,719,257
- --------------------------------------------------------------------------------------------------
Net assets $168,206,629
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $160,873,905
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 23,182,003
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (15,618,608)
- --------------------------------------------------------------------------------------------------
Accumulated net investment loss (230,671)
- --------------------------------------------------------------------------------------------------
Total $168,206,629
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 10,802,027
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $70,909,984
- --------------------------------------------------------------------------------------------------
Shares outstanding 4,451,893
- --------------------------------------------------------------------------------------------------
Net asset value per share $15.93
- --------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$15.93) $16.90
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $77,259,149
- --------------------------------------------------------------------------------------------------
Shares outstanding 5,044,655
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.32
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $17,433,334
- --------------------------------------------------------------------------------------------------
Shares outstanding 1,142,309
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.26
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $486,812
- --------------------------------------------------------------------------------------------------
Shares outstanding 29,973
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.24
- --------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $2,111,875
- --------------------------------------------------------------------------------------------------
Shares outstanding 132,852
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $15.90
- --------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $5,475
- --------------------------------------------------------------------------------------------------
Shares outstanding 344.54
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $15.89
- --------------------------------------------------------------------------------------------------
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 (unaudited)
- --------------------------------------------------------------------------------------------------
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 SIX MONTHS ENDED 2/29/04
NET INVESTMENT INCOME (LOSS)
Income
- --------------------------------------------------------------------------------------------------
Dividends $1,218,628
- --------------------------------------------------------------------------------------------------
Interest 37,120
- --------------------------------------------------------------------------------------------------
Foreign taxes withheld (5,348)
- --------------------------------------------------------------------------------------------------
Total investment income $1,250,400
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $524,140
- --------------------------------------------------------------------------------------------------
Trustees' compensation 9,884
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 156,428
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 113,296
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 395,643
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 82,003
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 1,386
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 8
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 4
- --------------------------------------------------------------------------------------------------
Administrative fee 5,006
- --------------------------------------------------------------------------------------------------
Custodian fee 20,528
- --------------------------------------------------------------------------------------------------
Printing 25,438
- --------------------------------------------------------------------------------------------------
Postage 10,033
- --------------------------------------------------------------------------------------------------
Auditing fees 13,868
- --------------------------------------------------------------------------------------------------
Legal fees 54
- --------------------------------------------------------------------------------------------------
Miscellaneous 61,359
- --------------------------------------------------------------------------------------------------
Total expenses $1,419,078
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (1,324)
- --------------------------------------------------------------------------------------------------
Net expenses $1,417,754
- --------------------------------------------------------------------------------------------------
Net investment loss $(167,354)
- --------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $12,518,498
- --------------------------------------------------------------------------------------------------
Foreign currency transactions (1,097)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $12,517,401
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- --------------------------------------------------------------------------------------------------
Investments $8,741,172
- --------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (389)
- --------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $8,740,783
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $21,258,184
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $21,090,830
- --------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/29/04 8/31/03
(UNAUDITED)
INCREASE IN NET ASSETS
OPERATIONS
Net investment loss $(167,354) $(157,917)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 12,517,401 (6,593,906)
- --------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation 8,740,783 20,395,735
- ---------------------------------------------------------- ----------- ------------
Increase in net assets from operations $21,090,830 $13,643,912
- ---------------------------------------------------------- ----------- ------------
Net increase (decrease) in net assets from fund share
transactions $2,664,128 $(10,654,181)
- ---------------------------------------------------------- ----------- ------------
Total increase in net assets $23,754,958 $2,989,731
- ---------------------------------------------------------- ----------- ------------
NET ASSETS
At beginning of period $144,451,671 $141,461,940
- --------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $230,671 and $63,317, respectively) $168,206,629 $144,451,671
- --------------------------------------------------------------------------------------------------
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 semiannual
period and 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) held for the entire
period.
YEARS ENDED 8/31
SIX MONTHS
ENDED -------------------------------------------------------------------
CLASS A 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $13.97 $12.51 $15.15 $18.82 $17.87 $14.42
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.01 $0.04 $0.00+++ $0.02 $0.02 $0.05
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.95 1.42 (2.38) (3.69) 2.26 4.03
- --------------------------------------- ------- ------ ------ ------ ------ ------
Total from investment operations $1.96 $1.46 $(2.38) $(3.67) $2.28 $4.08
- --------------------------------------- ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $-- $-- $-- $-- $-- $(0.01)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- (0.26) -- (1.33) (0.62)
- --------------------------------------- ------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $(0.26) $-- $(1.33) $(0.63)
- --------------------------------------- ------- ------ ------ ------ ------ ------
Net asset value, end of period $15.93 $13.97 $12.51 $15.15 $18.82 $17.87
- --------------------------------------- ------- ------ ------ ------ ------ ------
Total return (%)(+) 14.03++ 11.67 (16.00) (19.50) 13.76 28.64
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.37+ 1.47 1.37 1.32 1.28 1.23
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.17+ 0.29 0.03 0.12 0.13 0.30
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 57 121 100 78 74 96
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $70,910 $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
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------
CLASS B 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $13.48 $12.14 $14.81 $18.52 $17.72 $14.40
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.03) $(0.04) $(0.09) $(0.09) $(0.09) $(0.08)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.87 1.38 (2.32) (3.62) 2.22 4.02
- --------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $1.84 $1.34 $(2.41) $(3.71) $2.13 $3.94
- --------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $(0.26) $-- $(1.33) $(0.62)
- --------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $15.32 $13.48 $12.14 $14.81 $18.52 $17.72
- --------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 13.65++ 11.04 (16.57) (20.03) 12.98 27.74
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.02+ 2.12 2.02 1.97 1.96 1.98
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.47)+ (0.36) (0.62) (0.53) (0.55) (0.45)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 57 121 100 78 74 96
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $77,259 $75,007 $73,146 $91,455 $111,380 $112,000
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------
CLASS C 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $13.43 $12.10 $14.76 $18.46 $17.67 $14.36
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.03) $(0.04) $(0.09) $(0.09) $(0.09) $(0.08)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.86 1.37 (2.31) (3.61) 2.21 4.01
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total from investment operations $1.83 $1.33 $(2.40) $(3.70) $2.12 $3.93
- --------------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments
and foreign currency transactions $-- $-- $(0.26) $-- $(1.33) $(0.62)
- --------------------------------------- -------- ------ ------ ------ ------ ------
Net asset value, end of period $15.26 $13.43 $12.10 $14.76 $18.46 $17.67
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total return (%) 13.63++ 10.99 (16.56) (20.04) 12.96 27.66
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.02+ 2.12 2.02 1.97 1.96 1.98
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.47)+ (0.35) (0.62) (0.52) (0.55) (0.46)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 57 121 100 78 74 96
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $17,433 $15,325 $17,521 $22,081 $20,432 $22,074
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------
CLASS I 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $14.22 $12.69 $15.31 $18.95 $17.93 $14.47
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.04 $0.08 $0.06 $0.08 $0.08 $0.09
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.98 1.45 (2.42) (3.72) 2.27 4.05
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total from investment operations $2.02 $1.53 $(2.36) $(3.64) $2.35 $4.14
- --------------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $-- $-- $-- $-- $-- $(0.06)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- (0.26) -- (1.33) (0.62)
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $(0.26) $-- $(1.33) $(0.68)
- --------------------------------------- -------- ------ ------ ------ ------ ------
Net asset value, end of period $16.24 $14.22 $12.69 $15.31 $18.95 $17.93
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total return (%) 14.21++ 12.06 (15.70) (19.21) 14.12 28.95
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.02+ 1.12 1.02 0.97 0.97 0.98
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.53+ 0.65 0.38 0.47 0.45 0.56
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 57 121 100 78 74 96
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $487 $398 $428 $486 $554 $742
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS PERIOD
ENDED ENDED
CLASS R1** 2/29/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $13.96 $12.02
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss) $0.00+++ $(0.00)+++
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 1.94 1.94###
- ----------------------------------------------------------------------- ------- ------
Total from investment operations $1.94 $1.94
- ----------------------------------------------------------------------- ------- ------
Net asset value, end of period $15.90 $13.96
- ----------------------------------------------------------------------- ------- ------
Total return (%) 13.90++ 16.14++
- -----------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.48+ 1.74+
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.02+ (0.04)+
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover 57 121
- -----------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $2,112 $17
- -----------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
** Effective November 3, 2003, Class R shares have been renamed R1 shares.
+ 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.
### 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.
Financial Highlights - continued
PERIOD
ENDED
CLASS R2 2/29/04*
(UNAUDITED)
Net asset value, beginning of period $14.57
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.01)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 1.33###
- ----------------------------------------------------------------- -------
Total from investment operations $1.32
- ----------------------------------------------------------------- -------
Net asset value, end of period $15.89
- ----------------------------------------------------------------- -------
Total return (%) 9.06++
- --------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.77+
- --------------------------------------------------------------------------------
Net investment loss (0.17)+
- --------------------------------------------------------------------------------
Portfolio turnover 57
- --------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $5
- --------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through February 29, 2004.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect 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 (unaudited)
- ------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Research Growth and Income Fund (the fund) is a diversified series of MFS
Series Trust I (the trust). The trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with
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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market prices where current market
prices are readily available, or the fund may fair value portfolio securities
under the direction of the Board of Trustees when a determination is made that
current market prices are not readily available. Equity securities in the
fund's portfolio for which market quotations are available are valued at the
last sale or official closing price as reported by an independent pricing
service 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. Equity securities traded over the counter are valued at the
last sales price traded each day as reported by an independent pricing
service, or to the extent there are no sales reported, such securities are
valued on the basis of quotations obtained from brokers and dealers. Equity
securities for which it is determined that current market prices are not
readily available will be fair valued under the direction of the Board
of Trustees.
The fund may also fair value foreign equity securities in cases where closing
market prices are not readily available or are deemed not reflective of readily
available market prices. For example, significant events (such as movement in
the U.S. securities market, or other regional and local developments) may occur
between the time that foreign markets close (where the security is principally
traded) and the time that the fund calculates its net asset value (generally,
the close of the NYSE) that may impact the value of securities traded in these
foreign markets. In these cases, the fund may utilize information from an
external vendor or other sources to adjust closing market prices of foreign
equity securities to reflect what it believes to be the fair value of the
securities as of the fund's valuation time. Because the frequency of significant
events is not predictable, fair valuation of foreign equity securities may occur
on a frequent basis. Short-term obligations with a remaining maturity in excess
of 60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the fund's portfolio are valued at amortized cost, which
constitutes market value as determined by the Board of Trustees. Money market
mutual funds are valued at net asset value. 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.
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 - 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.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or 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 premium
and discount is amortized or accreted for financial statement purposes in
accordance with accounting principles generally accepted in the United Sates
of America. 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 six months ended February 29, 2004, the fund's custodian
fees were reduced by $316 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the six months ended February 29, 2004, the fund's miscellaneous
expenses were reduced by $1,008 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 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 $-- $--
- -------------------------------------------------------------------------
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.
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 capital loss deferral (2,824,860)
- -------------------------------------------------------------------------
Other temporary differences (63,317)
- -------------------------------------------------------------------------
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 on:
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).
The fund has an unfunded defined benefit plan for retired Trustees and an
unfunded retirement benefit deferral plan for current Trustees. Included in
Trustees' compensation is a net decrease of $8,737 as a result of the change
in the fund's pension liability for current Trustees and a pension expense of
$15,437 for retired Trustees for the six months ended February 29, 2004.
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 up to the following annual percentage rates 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%
----------------------------------------------------------
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to Class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in Class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of Class R2 shares to MFS
for the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$14,027 for the six months ended February 29, 2004, 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,
Class R1, and Class R2 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. The 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the six months ended
February 29, 2004 amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $1,184 $394 $135 $-- $--
- --------------------------------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February 29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual Percentage Rates 0.35% 1.00% 1.00% 0.50% 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 six months ended February 29, 2004,
were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $862 $69,271 $455
- -----------------------------------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, 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%, which amounted to
$97,378 for the six months ended February 29, 2004. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $14,277 for the six months ended February 29, 2004, as well as
other expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$98,142,888 and $88,789,136, 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 $164,925,345
---------------------------------------------------------
Gross unrealized appreciation $24,227,838
---------------------------------------------------------
Gross unrealized depreciation (2,290,064)
---------------------------------------------------------
Net unrealized appreciation $21,937,774
---------------------------------------------------------
(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:
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 1,375,111 $20,245,836 1,098,510 $13,829,346
- --------------------------------------------------------------------------------------------------------
Shares reacquired (767,138) (11,700,941) (1,281,219) (15,706,599)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) 607,973 $8,544,895 (182,709) $(1,877,253)
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 663,140 $9,530,598 1,136,225 $13,674,207
- --------------------------------------------------------------------------------------------------------
Shares reacquired (1,183,982) (17,490,744) (1,594,020) (18,851,858)
- --------------------------------------------------------------------------------------------------------
Net decrease (520,842) $(7,960,146) (457,795) $(5,177,651)
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 144,341 $2,058,755 215,541 $2,588,515
- --------------------------------------------------------------------------------------------------------
Shares reacquired (143,106) (2,072,299) (522,037) (6,134,419)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,235 $(13,544) (306,496) $(3,545,904)
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 5,523 $82,859 6,948 $87,434
- --------------------------------------------------------------------------------------------------------
Shares reacquired (3,529) (53,021) (12,684) (157,063)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,994 $29,838 (5,736) $(69,629)
- --------------------------------------------------------------------------------------------------------
Six months ended Period ended
2/29/04 8/31/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 267,632 $4,186,821 1,239 $16,256
- --------------------------------------------------------------------------------------------------------
Shares reacquired (136,019) (2,128,756) -- --
- --------------------------------------------------------------------------------------------------------
Net increase 131,613 $2,058,065 1,239 $16,256
- --------------------------------------------------------------------------------------------------------
Period ended
2/29/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 345 $5,020
- --------------------------------------------------------------------------
Net increase 345 $5,020
- --------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
** For the period from the inception of Class R2 shares, October 31, 2003, through February 29, 2004.
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the six months ended February 29, 2004 was $533. The
fund had no borrowings during the six months ended February 29, 2004.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding regarding
disclosure of brokerage allocation practices in connection with fund sales.
Under the terms of the settlement, in which MFS neither admitted nor denied
any wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement and $50
million in penalty to certain MFS funds, pursuant to a plan to be approved by
an independent distribution consultant. The agreement with the SEC is
reflected in an order of the SEC. The settlement order states that MFS failed
to adequately disclose to the Boards of Trustees and to shareholders of the
MFS funds the specifics of its preferred arrangements with certain brokerage
firms selling MFS fund shares. The settlement order states that MFS had in
place policies designed to obtain best execution of all fund trades.
As part of the settlement, MFS also agreed to retain an independent compliance
consultant to review the completeness of its disclosure to fund trustees and
to fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial advisers who support the sale of fund
shares. The brokerage allocation practices which were the subject of this
proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the Securities and
Exchange Commission ("SEC"), the New York Attorney General ("NYAG") and the
Bureau of Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in certain
MFS fund prospectuses regarding market timing and related matters (the "February
Settlements"). These regulators alleged that prospectus language for certain MFS
funds was false and misleading because, although the prospectuses for those
funds in the regulators' view indicated that the funds prohibited market timing,
MFS did not limit trading activity in 11 domestic large cap stock, high grade
bond and money market funds. MFS' former Chief Executive Officer, John W.
Ballen, and former President, Kevin R. Parke, have also reached agreement with
the SEC (Messrs. Ballen and Parke resigned their director and officer positions
with MFS on February 13, 2004). Under the terms of the February Settlements, MFS
and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds offered
to retail investors ("Retail Funds"), which has been funded by MFS and of which
$50 million is characterized as a penalty. This pool will be distributed in
accordance with a methodology developed by an independent distribution
consultant in consultation with MFS and the Boards of Trustees of the Retail
Funds, and acceptable to the SEC. MFS has further agreed with the NYAG to reduce
its management fees in the aggregate amount of approximately $25 million
annually over the next five years, and not to increase certain management fees
during this period. MFS has also paid an administrative fine to NH in the amount
of $1 million, which will be used for investor education purposes (NH will
retain $250,000 and $750,000 will be contributed to the North American
Securities Administrators Association's Investor Protection Trust). In addition,
MFS and the Retail Funds will adopt certain governance changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as
trustees of all MFS funds, and Mr. Ballen resigned his position as President
of all MFS funds, effective February 6, 2004. Messrs. Ballen and Parke will
not be returning to MFS or the MFS funds after their suspensions.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The
lawsuits variously have been commenced as class actions or individual actions
on behalf of investors who purchased, held or redeemed shares of the funds
during specified periods, as class actions on behalf of participants in
certain retirement plan accounts, or as derivative actions on behalf of the
MFS funds. The lawsuits generally allege that some or all of the defendants
(i) permitted or acquiesced in market timing and/or late trading in some of
the MFS funds, inadequately disclosed MFS' internal policies concerning market
timing and such matters, and received excessive compensation as fiduciaries to
the MFS fund, or (ii) permitted or acquiesced in the improper use of fund
assets by MFS to support the distribution of fund shares and inadequately
disclosed MFS' use of fund assets in this manner. The actions assert that some
or all of the defendants violated the federal securities laws, including the
Securities Act of 1933 and the Securities Exchange Act of 1934, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, the Employee
Retirement Income Security Act of 1974, as well as fiduciary duties and other
violations of common law. The lawsuits seek unspecified compensatory damages.
Insofar as any of the actions is appropriately brought derivatively on behalf
of any of the MFS funds, any recovery will inure to the benefit of the funds.
The defendants are reviewing the allegations of the multiple complaints and
will respond appropriately. Additional lawsuits based on similar allegations
may be filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS
has established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the
funds, and will pay $50 million to compensate certain MFS funds based upon the
amount of brokerage commissions allocated in recognition of fund sales. It is
not clear whether these amounts will be sufficient to compensate shareholders
for all of the damage they allegedly sustained, whether certain shareholders
or putative class members may have additional claims to compensation, or
whether the damages that may be awarded in any of the actions will exceed
these amounts. In the event the MFS funds incur any losses, costs or expenses
in connection with such lawsuits, the Boards of Trustees of the affected funds
may pursue claims on behalf of such funds against any party that may have
liability to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- --------------------------------------------------------------------------------------------------------------
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
JOHN W. BALLEN(2)(5) (born 09/12/59) DAVID H. GUNNING(4) (born 05/30/42)
Trustee and President Trustee
Massachusetts Financial Services Company, Chief Cleveland-Cliffs Inc. (mining products and service
Executive Officer and Director (until February provider), Vice Chairman/Director (since April
2004) 2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
ROBERT J. MANNING(2)(7) (born 10/20/63) Electric Holdings, Inc. (welding equipment
Trustee manufacturer), Director; Southwest Gas Corporation
Massachusetts Financial Services Company, Chief (natural gas distribution company), Director
Executive Officer, President, Chief Investment
Officer and Director WILLIAM R. GUTOW (born 09/27/41)
Trustee
KEVIN R. PARKE(2)(5) (born 12/14/59) Private investor and real estate consultant;
Trustee Capitol Entertainment Management Company (video
Massachusetts Financial Services Company, franchise), Vice Chairman
President, Chief Investment Officer and Director
(until February 2004) AMY B. LANE(4) (born 02/08/53)
Trustee
ROBERT C. POZEN(2)(7) (born 08/08/46) Retired; Merrill Lynch & Co., Inc., Managing
Trustee Director, Investment Banking Group (1997 to
Massachusetts Financial Services Company, Chairman February 2001); Borders Group, Inc. (book and
(since February 2004); Harvard Law School music retailer), Director; Federal Realty
(education), John Olin Visiting Professor (since Investment Trust (real estate investment trust),
July 2002); Secretary of Economic Affairs, The Trustee
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice ABBY M. O'NEILL(3) (born 04/27/28)
Chairman (June 2000 to December 2001); Fidelity Trustee
Management & Research Company (investment Private investor; Rockefeller Financial Services,
adviser), President (March 1997 to July 2001); The Inc. (investment advisers), Chairman and Chief
Bank of New York (financial services), Director; Executive Officer
Bell Canada Enterprises (telecommunications),
Director; Telesat (satellite communications), LAWRENCE T. PERERA (born 06/23/35)
Director Trustee
Hemenway & Barnes (attorneys), Partner
JEFFREY L. SHAMES(2)(6) (born 06/02/55)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Chairman Trustee
(until February 2004)
Private investor; Harvard University Graduate
INDEPENDENT TRUSTEES School of Business Administration, Class of 1961
J. ATWOOD IVES (born 05/01/36) Adjunct Professor in Entrepreneurship Emeritus;
Co-Chair CBL & Associates Properties, Inc. (real estate
Private investor; KeySpan Corporation (energy investment trust), Director
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee J. DALE SHERRATT (born 09/23/38)
and Chief Executive Officer (until November 2000) Trustee
Insight Resources, Inc. (acquisition planning
WARD SMITH (born 09/13/30) specialists), President; Wellfleet Investments
Co-Chair (investor in health care companies), Managing
Private investor General Partner (since 1993); Cambridge
Nutraceuticals (professional nutritional
LAWRENCE H. COHN, M.D. (born 03/11/37) products), Chief Executive Officer (until May
Trustee 2001)
Brigham and Women's Hospital, Chief of Cardiac
Surgery; Harvard Medical School, Professor of ELAINE R. SMITH (born 04/25/46)
Surgery Trustee
Independent health care industry consultant
(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.
(3) Retired December 31, 2003.
(4) Appointed Trustee on January 27, 2004.
(5) Resigned February 6, 2004.
(6) Resigned on February 13, 2004.
(7) Appointed Trustee on February 24, 2004.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN(1) (born 09/12/59) RICHARD M. HISEY (born 08/29/58)
Trustee and President Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Senior
Executive Officer and Director (until February Vice President (since July 2002); The Bank of New
2004) York, Senior Vice President (September 2000 to
July 2002); Lexington Global Asset Managers, Inc.,
JAMES R. BORDEWICK, JR. (born 03/06/59) Executive Vice President and Chief Financial
Assistant Secretary and Assistant Clerk Officer (prior to September 2000); Lexington
Massachusetts Financial Services Company, Senior Funds, Treasurer (prior to September 2000)
Vice President and Associate General Counsel
ROBERT J. MANNING(2) (born 10/20/63)
STEPHEN E. CAVAN (born 11/06/53) President
Secretary and Clerk Massachusetts Financial Services Company, Chief
Massachusetts Financial Services Company, Senior Executive Officer, President, Chief Investment
Vice President, General Counsel and Secretary Officer and Director
STEPHANIE A. DESISTO (born 10/01/53) ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers President
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus JAMES O. YOST (born 06/12/60)
Investment Management, Senior Vice President Assistant Treasurer
(prior to November 2002) Massachusetts Financial Services Company, Senior
Vice President
ROBERT R. FLAHERTY (born 09/18/63)
Assistant Treasurer
Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
(1) Resigned on February 6, 2004.
(2) Appointed President on February 6, 2004.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five
years thereafter to elect Trustees. Each Trustee and officer will hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Mr. Shames has served as a Trustee of the Trust continually since originally appointed until February 13,
2004. Messrs. Cohn, Sherratt and Smith, have served in their capacity as Trustee of the Trust continuously
since originally elected or appointed. Messrs. 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. Ballen was elected by
shareholders and served as a Trustee of the Trust from January 1, 2002 until February 6, 2004, and Mr. Parke
served as a Trustee of the Trust from January 1, 2002, until February 6, 2004. Ms. O'Neill retired on December
31, 2003. Mr. Gunning and Ms. Lane have served as Trustees of the Trust since January 27, 2004, and Messrs.
Manning and Pozen have served as Trustees since February 24, 2004.
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 109 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 DIRECTOR OF GLOBAL EQUITY RESEARCH
Massachusetts Financial Services Company David Antonelli
500 Boylston Street, Boston, MA
02116-3741 CUSTODIAN
State Street Bank and Trust Company
DISTRIBUTOR 225 Franklin Street, Boston, MA
MFS Fund Distributors, Inc. 02110
500 Boylston Street, Boston, MA
02116-3741
- ------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. The prospectus contains complete information on the fund's
investment objective(s), the risks associated with an investment in the fund,
the fees, charges and expenses involved, as well as other information about
the fund. The prospectus should be read carefully before investing.
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 and procedures 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 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
RGI-SEM-4/04 36M
MFS(R) Mutual Funds
SEMIANNUAL REPORT 2/29/04
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
The fund seeks capital appreciation.
- -------------------------------------------------------------------------------
To view MFS' statement concerning regulatory issues affecting the mutual fund
industry and the firm, please visit mfs.com.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- ----------------------------------------------------
FINANCIAL STATEMENTS 24
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 41
- ----------------------------------------------------
TRUSTEES AND OFFICERS 52
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 54
- ----------------------------------------------------
CONTACT INFORMATION 55
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
As the firm's new Chief Executive Officer, I want to thank you for your
continued trust in MFS and tell you about the series of actions we have taken
since our recent settlements with the regulators. These actions are designed
to enhance the governance structure of the MFS funds, tighten our business
practices, and strengthen the management team at MFS.
In early February, Robert Pozen joined MFS as non-executive Chairman. A
seasoned veteran of the mutual fund industry, Bob has held prior positions as
President of Fidelity Management & Research Company, as Associate General
Counsel of the Securities and Exchange Commission, and as a visiting professor
at Harvard Law School.
In an effort to develop and implement policies that we believe will set a new
standard in regulatory compliance, MFS has hired two new senior executives.
Jeffrey Carp is joining us as General Counsel with responsibility for all of
our legal affairs. Previously he was a senior partner with the law firm of
Hale and Dorr LLP. Also joining MFS in the new position of Executive Vice
President of Regulatory Affairs is Maria Dwyer, who returned to the firm after
serving as a senior executive at Fidelity. At MFS, Maria is in charge of
compliance, internal audit, and fund treasury.
In the area of governance, we have taken steps to enhance the independence of
our funds' boards of trustees to better protect the interests of shareholders.
We have independent board chairs and at least 75% of the trustees are
independent. The trustees will appoint not only their own counsel but also an
independent compliance officer. This officer will assist the boards and their
committees in monitoring the MFS funds' compliance with federal and state
regulations.
In February, MFS reached agreements with federal and state regulators to
settle their administrative proceedings against the firm and two senior
executives in connection with market timing and related issues. Under the
terms of the settlements, we agreed to pay $225 million to compensate affected
retail fund shareholders. The $225 million will be distributed in accordance
with a distribution plan developed by an independent consultant.
We have further agreed with state regulators to reduce management fees on
certain funds we advise by approximately $25 million annually over the next
five years and to pay an administrative fine of $1 million, which will be used
for the purpose of investor education. We have introduced a set of policies
designed to protect the MFS funds and MFS fund shareholders from market timing
abuses. By July, all MFS retail funds, except money market funds, will have a
2% redemption fee on short-term trades. Our global, international, high-yield,
mid- and small-cap funds will impose the 2% fee on redemptions or exchanges of
fund shares made within 30 calendar days of a share purchase. For all other
MFS funds, except money market funds, the 2% fee will be imposed on
redemptions or exchanges made within 5 business days of a share purchase. See
the fund prospectus for more information.
We continue to use fair value pricing, a strategy that minimizes the potential
for investors to take advantage of "stale" prices. These can occur, as one
example, when funds own foreign securities whose prices close on overseas
exchanges in different time zones. At the same time, we enhanced our
monitoring of excessive trading. We did so by increasing our staff and
updating our computer systems to improve our ability to detect excessive
trading in our funds. Finally, we are supporting industry efforts to establish
a "hard" 4 p.m. close on all trading, which would prevent the possibility of
late trading.
In March, MFS reached a second settlement with the SEC under an administrative
proceeding resolving the SEC's investigation into how we disclosed brokerage
allocation practices in connection with fund sales. According to the
settlement order, we did not effectively disclose the potential conflict of
interest that may arise from these arrangements.
Under the terms of the settlement, MFS has agreed to pay one dollar in
disgorgement and $50 million in penalty to MFS fund shareholders. The
settlement noted that MFS had policies in place designed to obtain best
execution of all trades of securities within MFS portfolios.
This past November, MFS eliminated the above mentioned practice of directing
brokerage commissions to certain firms in recognition of fund sales.
Additionally, we announced in March that we would ban the use of soft dollars
to acquire third-party securities research and market data. Soft dollars are
permitted under federal securities laws. In fact, it is a common industry
practice to use a portion of the brokerage commissions to pay for certain
research and execution products and services that are provided to asset
managers. MFS will now pay cash out of its own pocket for third-party research
and market data.
MFS continues to be financially strong, with more than U.S. $140 billion (as
of 12/31/03) in assets under management, which continued to be stable during
the first quarter of 2004. We also have the full support of our parent
company, Sun Life Financial, an internationally diversified financial services
firm that manages more than U.S. $269 billion (as of 12/31/03).
We chose to settle these two proceedings with the SEC so we could concentrate
on serving our fund shareholders. As Chief Investment Officer, my focus is on
ensuring that our portfolio teams work closely together and take full
advantage of all the resources available to them to deliver the best possible
investment performance.
As the inventor of the open-end mutual fund in America in 1924, MFS has a
strong tradition and culture of innovation. By strengthening our business and
governance practices, we believe we have an unprecedented opportunity to set a
new standard in the mutual fund industry.
As I look ahead, I do so with confidence. The collaboration among MFS
employees, many of whom have worked at the firm for their entire careers,
continues as we remain singularly dedicated to our clients. It has been our
sincere privilege to serve you, and we thank you for the confidence that you
have shown in MFS.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer
MFS Investment Management(R)
March 15, 2004
Note to Shareholders: On February 6, 2004, Jeffrey L. Shames retired as
Chairman of MFS. Robert Pozen was named as non-executive Chairman. Also,
on February 6, 2004, Robert J. Manning was appointed Chief Executive Officer,
President, and Chief Investment Officer.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 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 turnaround in global stock markets that began in the spring of 2003
continued for most of the six-month period ended February 29, 2004. The release
of increasingly positive economic numbers as the period progressed, particularly
with regard to corporate earnings and GDP (gross domestic product) growth,
helped drive the equity rally. By late 2003, corporate capital spending, which
had been weak for some time, had also begun to accelerate. Another driver of the
equity rally, in our view, was the U.S. Federal Reserve Board's decision to
leave interest rates at a four-decade low throughout the period. While energy
prices rose late in the period, core inflation - excluding volatile food and
energy prices - remained very low relative to historical averages.
- -----------------------------------------------
TOP 5 SECTOR WEIGHTINGS
AS OF 2/29/04
TECHNOLOGY 39.4%
- -----------------------------------------------
HEALTH CARE 18.4%
- -----------------------------------------------
SPECIAL PRODUCTS AND SERVICES 14.7%
- -----------------------------------------------
RETAILING 8.3%
- -----------------------------------------------
FINANCIAL SERVICES 5.3%
- -----------------------------------------------
The portfolio is actively managed, and current
weightings may be different.
- -----------------------------------------------
DETRACTORS FROM PERFORMANCE
Over the six-month period ended February 29, 2004, the fund underperformed its
benchmark, the Russell 2000 Growth Index, and the average small-cap growth
fund as reported by Lipper Inc.
Relative to our benchmark, technology was the fund's weakest area over the
period. Stock selection as well as an overweighting in the sector hurt results
as the sector underperformed the broad market. Our shares in GlobespanVirata, a
maker of semiconductor chips for telecommunications equipment, fell in price
after the firm lowered earnings expectations in the face of strong competition
and pricing pressure. We subsequently sold our position in the firm. Similarly,
our stock in Zarlink Semiconductor, another supplier to the telecommunications
industry, traded lower after the company lowered projections for first-quarter
2004 sales. The fund's holding in DVD software company InterVideo dropped in
price after InterVideo's main competitor announced it would give away DVD
software in hopes of motivating consumers to upgrade to a paid version later.
Other technology positions that lost value over the period included human
resources and payroll software firm Kronos and e-commerce outsourcing company
Digital River.
Stock selection in the health care sector also held back performance. The
major detractors in the sector were biopharmaceutical firm XOMA and Advisory
Board, a provider of best practices research and analysis to the health care
industry.
Stock selection in the leisure sector also detracted from performance. Going
into the period, we believed our positions in advertising-sensitive
broadcasting stocks would benefit from increased ad spending as the U.S.
economy recovered. However, advertising spending, particularly in local
markets, stagnated somewhat during the period. Fund positions such as Entercom
Communications and Cox Radio lost value. Elsewhere in the sector, our position
in educational toy maker LeapFrog Enterprises fell after the company reported
weak sales growth that hurt third-quarter 2003 earnings. LeapFrog was later
sold from the portfolio. (LeapFrog, Entercom, and Cox, however, were not among
the fund's top detractors for the period.)
The fund's cash position, while it averaged less than 3% of assets over the
period, also detracted from relative performance. In a period when equity
markets rose sharply, cash hurt performance against our benchmark, the Russell
2000 Growth Index, which has no cash position.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the utilities and communications sector was positive for
performance. Andrew Corporation, a supplier of infrastructure products to
wireless communications firms, was the key contributor in the sector. We
believe the firm's strong performance was driven by increased capital spending
in the wireless industry as a whole.
In the autos and housing sector, stock selection as well as an underweighting
in the sector were modestly beneficial for performance as the sector
underperformed the broad market.
While overall stock selection in technology detracted from results, a number
of technology stocks were among the fund's top relative performers over the
period. These included software firm Open Text, Internet networking products
firm F5 Networks, online education firm eCollege.com, network security firm
NetScreen Technologies, and semiconductor company PMC-Sierra. All of these
stocks outperformed the broad market over the period. NetScreen Technologies
was sold when a takeover bid was launched for the company, and the stock
reached our price target.
In the financial services area, our position in Friedman, Billings, Ramsey
Group, a provider of investment banking and asset management services,
benefited from its exposure to an improving equity market. Another strong
contributor to performance was our holding in medical equipment firm
Nektar Therapeutics.
Respectfully,
/s/ Robert A. Henderson /s/ Donald F. Pitcher, Jr.
Robert A. Henderson Donald F. Pitcher, Jr.
Portfolio Manager Portfolio Manager
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Investment Perspective for our current
view of the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/29/04
- ------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as average annual total returns for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including the reinvestment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/2/1997 -- 48.43% -2.80% 9.16% 12.67%
- ------------------------------------------------------------------------------
B 11/3/1997 -- 47.50% -3.42% 8.45% 12.04%
- ------------------------------------------------------------------------------
C 11/3/1997 -- 47.55% -3.44% 8.47% 12.05%
- ------------------------------------------------------------------------------
I 1/2/1997 -- 49.05% -2.47% 9.55% 13.06%
- ------------------------------------------------------------------------------
R1 12/31/2002 -- 48.25% -2.84% 9.14% 12.65%
- ------------------------------------------------------------------------------
R2 10/31/2003 -- 48.34% -2.82% 9.15% 12.66%
- ------------------------------------------------------------------------------
529A 7/31/2002 -- 48.24% -2.90% 9.10% 12.62%
- ------------------------------------------------------------------------------
529B 7/31/2002 -- 47.21% -3.25% 8.86% 12.45%
- ------------------------------------------------------------------------------
529C 7/31/2002 -- 47.16% -3.28% 8.84% 12.43%
- ------------------------------------------------------------------------------
Comparative benchmarks
- --------------------
Average annual
- --------------------
- ------------------------------------------------------------------------------
Average small cap
growth fund+ 14.45% 59.41% 1.56% 7.29% 6.97%
- ------------------------------------------------------------------------------
Russell 2000 Growth Index# 15.42% 64.86% 1.94% 2.93% 3.21%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
- --------------------
Average annual
with sales charge
- --------------------
Share
class 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A -- 39.90% -4.70% 7.88% 11.74%
- ------------------------------------------------------------------------------
B -- 43.50% -4.40% 8.16% 12.04%
- ------------------------------------------------------------------------------
C -- 46.55% -3.44% 8.47% 12.05%
- ------------------------------------------------------------------------------
529A -- 39.72% -4.80% 7.81% 11.69%
- ------------------------------------------------------------------------------
529B -- 43.21% -4.21% 8.58% 12.45%
- ------------------------------------------------------------------------------
529C -- 46.16% -3.28% 8.84% 12.43%
- ------------------------------------------------------------------------------
I, R1, and R2 class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 10.43% 48.43% -8.16% 55.03% 134.83%
- ------------------------------------------------------------------------------
B 10.08% 47.50% -9.92% 50.02% 125.53%
- ------------------------------------------------------------------------------
C 10.06% 47.55% -9.96% 50.18% 125.77%
- ------------------------------------------------------------------------------
I 10.63% 49.05% -7.22% 57.78% 140.72%
- ------------------------------------------------------------------------------
R1 10.30% 48.25% -8.27% 54.84% 134.54%
- ------------------------------------------------------------------------------
R2 10.37% 48.34% -8.21% 54.94% 134.69%
- ------------------------------------------------------------------------------
529A 10.39% 48.24% -8.45% 54.55% 134.10%
- ------------------------------------------------------------------------------
529B 9.96% 47.21% -9.43% 52.89% 131.59%
- ------------------------------------------------------------------------------
529C 9.96% 47.16% -9.53% 52.73% 131.34%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
January 2, 1997, through February 29, 2004. Index information is from January
1, 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 R1 and R2
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.
Performance results reflect any applicable subsidies and waivers in effect
during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
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 (unaudited) - 2/29/04
- --------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 97.8%
- --------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- --------------------------------------------------------------------------------------------
U.S. Stocks - 92.7%
- --------------------------------------------------------------------------------------------
Aerospace - 0.3%
- --------------------------------------------------------------------------------------------
KVH Industries, Inc.*^ 346,900 $5,633,656
- --------------------------------------------------------------------------------------------
Airlines - 0.2%
- --------------------------------------------------------------------------------------------
AirTran Holdings, Inc.* 87,900 $1,088,202
- --------------------------------------------------------------------------------------------
Alaska Air Group, Inc.*^ 13,530 348,262
- --------------------------------------------------------------------------------------------
Frontier Airlines, Inc.*^ 56,900 577,535
- --------------------------------------------------------------------------------------------
Mesa Air Group, Inc.*^ 166,100 1,493,239
- --------------------------------------------------------------------------------------------
SkyWest, Inc.^ 35,800 692,730
- --------------------------------------------------------------------------------------------
$4,199,968
- --------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.8%
- --------------------------------------------------------------------------------------------
Carter's, Inc.*^ 136,510 $4,095,300
- --------------------------------------------------------------------------------------------
Kellwood Co.^ 264,900 11,115,204
- --------------------------------------------------------------------------------------------
Quiksilver, Inc.* 127,800 2,507,436
- --------------------------------------------------------------------------------------------
Reebok International Ltd. 100,000 3,981,000
- --------------------------------------------------------------------------------------------
Timberland Co.* 37,500 2,315,250
- --------------------------------------------------------------------------------------------
Wolverine World Wide, Inc. 275,200 6,480,960
- --------------------------------------------------------------------------------------------
$30,495,150
- --------------------------------------------------------------------------------------------
Automotive - 0.1%
- --------------------------------------------------------------------------------------------
QUANTUM Fuel Systems Technologies Worldwide, Inc.*^ 262,400 $2,414,080
- --------------------------------------------------------------------------------------------
Banks & Credit Companies - 2.8%
- --------------------------------------------------------------------------------------------
BankUnited Financial Corp.*^ 194,100 $5,351,337
- --------------------------------------------------------------------------------------------
Cathay General Bancorp, Inc. 7,300 444,497
- --------------------------------------------------------------------------------------------
East West Bancorp, Inc. 99,900 5,309,685
- --------------------------------------------------------------------------------------------
First Community Bancorp^ 41,790 1,643,183
- --------------------------------------------------------------------------------------------
Franklin Bank Corp.*^ 64,480 1,226,409
- --------------------------------------------------------------------------------------------
Harbor Florida Bancshares, Inc.^ 124,900 3,600,867
- --------------------------------------------------------------------------------------------
Independence Community Bank Corp.^ 35,100 1,388,907
- --------------------------------------------------------------------------------------------
Investors Financial Services Corp. 170,800 7,520,324
- --------------------------------------------------------------------------------------------
Nara Bancorp, Inc. 73,600 2,462,656
- --------------------------------------------------------------------------------------------
Nelnet, Inc.* 42,800 1,007,940
- --------------------------------------------------------------------------------------------
NetBank, Inc. 280,800 3,481,920
- --------------------------------------------------------------------------------------------
UCBH Holdings, Inc. 235,300 9,176,700
- --------------------------------------------------------------------------------------------
Wintrust Financial Corp.^ 74,600 3,588,260
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$46,202,685
- --------------------------------------------------------------------------------------------
Biotechnology - 4.8%
- --------------------------------------------------------------------------------------------
Antigenics, Inc.*^ 278,110 $2,811,692
- --------------------------------------------------------------------------------------------
Bruker Biosciences Corp.* 324,200 1,844,698
- --------------------------------------------------------------------------------------------
Cell Genesys, Inc.*^ 206,700 2,918,604
- --------------------------------------------------------------------------------------------
Corgentech, Inc.*^ 83,190 1,601,408
- --------------------------------------------------------------------------------------------
CryoLife, Inc.*^ 478,800 3,064,320
- --------------------------------------------------------------------------------------------
CV Therapeutics, Inc.*^ 212,700 3,343,644
- --------------------------------------------------------------------------------------------
Dendreon Corp.*^ 292,400 4,023,424
- --------------------------------------------------------------------------------------------
Dyax Corp.*^ 60,700 789,100
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Gen-Probe, Inc.* 127,300 4,352,387
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ICOS Corp.*^ 106,700 4,084,476
- --------------------------------------------------------------------------------------------
Introgen Therapeutics, Inc.*^ 310,500 2,645,460
- --------------------------------------------------------------------------------------------
Ligand Pharmaceuticals, Inc.* 168,400 2,591,676
- --------------------------------------------------------------------------------------------
Medarex, Inc.*^ 10,100 90,395
- --------------------------------------------------------------------------------------------
MGI PHARMA, Inc.*^ 60,400 2,966,848
- --------------------------------------------------------------------------------------------
NeoPharm, Inc.^ 96,700 2,032,634
- --------------------------------------------------------------------------------------------
Neurocrine Biosciences, Inc.*^ 113,100 6,288,360
- --------------------------------------------------------------------------------------------
Onyx Pharmaceuticals, Inc.*^ 52,600 1,935,680
- --------------------------------------------------------------------------------------------
Pharmos Corp.*^ 609,000 2,685,690
- --------------------------------------------------------------------------------------------
Protein Design Labs, Inc.* 308,500 7,404,000
- --------------------------------------------------------------------------------------------
Renovis, Inc.* 142,100 2,216,760
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Seattle Genetics, Inc.*^ 107,300 1,056,905
- --------------------------------------------------------------------------------------------
Serologicals Corp.*^ 421,000 7,847,440
- --------------------------------------------------------------------------------------------
Telik, Inc.*^ 406,600 9,563,232
- --------------------------------------------------------------------------------------------
Vicuron Pharmaceuticals, Inc.* 79,100 1,857,268
- --------------------------------------------------------------------------------------------
$80,016,101
- --------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.4%
- --------------------------------------------------------------------------------------------
ADVO, Inc. 40,300 $1,302,093
- --------------------------------------------------------------------------------------------
Citadel Broadcasting Corp.* 225,000 4,207,500
- --------------------------------------------------------------------------------------------
Cox Radio, Inc.* 300,000 6,585,000
- --------------------------------------------------------------------------------------------
Cumulus Media, Inc.* 128,600 2,559,140
- --------------------------------------------------------------------------------------------
Emmis Communications Corp.* 100,000 2,530,000
- --------------------------------------------------------------------------------------------
Entercom Communications Corp.* 150,000 6,924,000
- --------------------------------------------------------------------------------------------
Hearst-Argyle Television, Inc. 100,000 2,635,000
- --------------------------------------------------------------------------------------------
LIN TV Corp.*^ 200,000 4,462,000
- --------------------------------------------------------------------------------------------
LodgeNet Entertainment Corp.* 76,054 1,445,026
- --------------------------------------------------------------------------------------------
Saga Communications, Inc.*^ 212,700 3,956,220
- --------------------------------------------------------------------------------------------
Spanish Broadcasting Systems, Inc.* 300,000 3,360,000
- --------------------------------------------------------------------------------------------
$39,965,979
- --------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.1%
- --------------------------------------------------------------------------------------------
First Albany Cos., Inc.^ 61,100 $823,017
- --------------------------------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc. 324,515 8,638,589
- --------------------------------------------------------------------------------------------
Jeffries Group, Inc. 213,500 7,899,500
- --------------------------------------------------------------------------------------------
Knight Trading Group, Inc.*^ 475,200 6,586,272
- --------------------------------------------------------------------------------------------
Raymond James Financial, Inc. 96,200 3,676,764
- --------------------------------------------------------------------------------------------
SWS Group, Inc.^ 224,300 3,952,166
- --------------------------------------------------------------------------------------------
Waddell & Reed Financial, Inc. 164,800 4,274,912
- --------------------------------------------------------------------------------------------
$35,851,220
- --------------------------------------------------------------------------------------------
Business Services - 9.5%
- --------------------------------------------------------------------------------------------
Alliance Data Systems Corp.* 244,600 $7,325,770
- --------------------------------------------------------------------------------------------
aQuantive, Inc.*^ 540,800 5,261,984
- --------------------------------------------------------------------------------------------
Asset Acceptance Capital Corp.* 203,880 3,710,616
- --------------------------------------------------------------------------------------------
Bright Horizons Family Solutions, Inc.* 133,800 6,184,236
- --------------------------------------------------------------------------------------------
CDI Corp. 148,900 4,288,320
- --------------------------------------------------------------------------------------------
Charles River Associates, Inc.* 142,590 4,964,984
- --------------------------------------------------------------------------------------------
Corporate Executive Board Co.* 233,600 11,649,632
- --------------------------------------------------------------------------------------------
CoStar Group, Inc.*^ 274,100 10,698,123
- --------------------------------------------------------------------------------------------
DiamondCluster International, Inc.*^ 410,300 3,828,099
- --------------------------------------------------------------------------------------------
Digital Insight Corp.*^ 324,800 7,035,168
- --------------------------------------------------------------------------------------------
Digitas, Inc.* 805,830 8,034,125
- --------------------------------------------------------------------------------------------
Getty Images, Inc.* 265,000 13,504,400
- --------------------------------------------------------------------------------------------
Global Payments, Inc. 290,249 12,556,172
- --------------------------------------------------------------------------------------------
Harris Interactive, Inc.*^ 1,263,400 10,839,972
- --------------------------------------------------------------------------------------------
Integrated Alarm Services Group, Inc.*^ 658,520 5,933,265
- --------------------------------------------------------------------------------------------
Kforce, Inc.*^ 110,100 1,095,495
- --------------------------------------------------------------------------------------------
Labor Ready, Inc.* 335,700 4,196,250
- --------------------------------------------------------------------------------------------
Monster Worldwide, Inc.* 350,000 7,700,000
- --------------------------------------------------------------------------------------------
MPS Group, Inc.* 796,800 7,768,800
- --------------------------------------------------------------------------------------------
MSC Industrial Direct Co., Inc. 123,020 3,524,523
- --------------------------------------------------------------------------------------------
Perot Systems Corp., "A" 343,950 4,753,389
- --------------------------------------------------------------------------------------------
Resources Connection, Inc.*^ 7,300 235,279
- --------------------------------------------------------------------------------------------
SIRVA, Inc.* 417,080 9,267,517
- --------------------------------------------------------------------------------------------
Ultimate Software Group, Inc.* 21,700 283,836
- --------------------------------------------------------------------------------------------
Universal Technical Institute, Inc.* 88,500 3,352,380
- --------------------------------------------------------------------------------------------
$157,992,335
- --------------------------------------------------------------------------------------------
Computer Software - 8.4%
- --------------------------------------------------------------------------------------------
Akamai Technologies, Inc.*^ 627,300 $9,409,500
- --------------------------------------------------------------------------------------------
Altiris, Inc.*^ 339,600 9,254,100
- --------------------------------------------------------------------------------------------
ANSYS, Inc.* 225,393 9,045,021
- --------------------------------------------------------------------------------------------
Ascential Software Corp.* 398,900 8,999,184
- --------------------------------------------------------------------------------------------
Aspect Communications Corp.* 199,900 3,610,194
- --------------------------------------------------------------------------------------------
E Piphany, Inc.* 429,600 2,985,720
- --------------------------------------------------------------------------------------------
Hyperion Solutions Corp.*^ 100,000 3,574,000
- --------------------------------------------------------------------------------------------
InterVideo, Inc.*^ 87,400 871,465
- --------------------------------------------------------------------------------------------
Kronos, Inc.* 443,250 14,915,363
- --------------------------------------------------------------------------------------------
Magma Design Automation, Inc.*^ 481,800 11,476,476
- --------------------------------------------------------------------------------------------
Manhattan Associates, Inc.* 848,700 24,323,742
- --------------------------------------------------------------------------------------------
Network Associates, Inc. 800,000 14,032,000
- --------------------------------------------------------------------------------------------
PalmSource, Inc.*^ 124,760 2,414,106
- --------------------------------------------------------------------------------------------
Progress Software Corp.* 465,400 9,684,974
- --------------------------------------------------------------------------------------------
SafeNet, Inc.*^ 108,700 4,133,861
- --------------------------------------------------------------------------------------------
Secure Computing Corp.*^ 345,100 4,990,146
- --------------------------------------------------------------------------------------------
SERENA Software, Inc.^ 266,700 5,523,357
- --------------------------------------------------------------------------------------------
Synplicity, Inc.*^ 30,000 215,400
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Vignette Corp.*^ 309,800 700,148
- --------------------------------------------------------------------------------------------
$140,158,757
- --------------------------------------------------------------------------------------------
Computer Software - Systems - 0.7%
- --------------------------------------------------------------------------------------------
Mentor Graphics Corp.*^ 502,000 $8,428,580
- --------------------------------------------------------------------------------------------
MICROS Systems, Inc.*^ 50,600 2,208,184
- --------------------------------------------------------------------------------------------
SS&C Technologies, Inc.^ 21,000 1,067,010
- --------------------------------------------------------------------------------------------
$11,703,774
- --------------------------------------------------------------------------------------------
Construction - 0.5%
- --------------------------------------------------------------------------------------------
Eagle Materials, Inc.*^ 157,200 $9,172,620
- --------------------------------------------------------------------------------------------
Consumer Goods & Services - 4.7%
- --------------------------------------------------------------------------------------------
Autobytel, Inc.* 50,000 $700,500
- --------------------------------------------------------------------------------------------
Career Education Corp.* 428,000 21,395,720
- --------------------------------------------------------------------------------------------
Corinthian Colleges, Inc.* 75,000 4,511,250
- --------------------------------------------------------------------------------------------
Education Management Corp.* 338,200 10,825,782
- --------------------------------------------------------------------------------------------
First Marblehead Corp.* 149,350 4,582,058
- --------------------------------------------------------------------------------------------
ITT Educational Services, Inc.* 289,500 10,992,315
- --------------------------------------------------------------------------------------------
Orbitz, Inc.*^ 177,600 4,637,136
- --------------------------------------------------------------------------------------------
Strayer Education, Inc. 189,500 20,591,070
- --------------------------------------------------------------------------------------------
$78,235,831
- --------------------------------------------------------------------------------------------
Electrical Equipment - 1.3%
- --------------------------------------------------------------------------------------------
A.O. Smith Corp. 186,900 $5,812,590
- --------------------------------------------------------------------------------------------
AMETEK, Inc. 119,400 5,928,210
- --------------------------------------------------------------------------------------------
Cherokee International Corp.*^ 155,600 2,544,060
- --------------------------------------------------------------------------------------------
Littelfuse, Inc.* 67,800 2,227,230
- --------------------------------------------------------------------------------------------
Mettler Toledo International, Inc.* 100,000 4,400,000
- --------------------------------------------------------------------------------------------
$20,912,090
- --------------------------------------------------------------------------------------------
Electronics - 15.8%
- --------------------------------------------------------------------------------------------
Advanced Energy Industries, Inc.*^ 122,800 $2,681,952
- --------------------------------------------------------------------------------------------
American Superconductor Corp.*^ 951,832 13,211,428
- --------------------------------------------------------------------------------------------
AMIS Holdings, Inc.*^ 637,900 11,258,935
- --------------------------------------------------------------------------------------------
Amphenol Corp., "A"* 195,300 12,079,305
- --------------------------------------------------------------------------------------------
Applied Films Corp.* 252,100 8,778,122
- --------------------------------------------------------------------------------------------
Arrow Electronics, Inc.* 89,300 2,196,780
- --------------------------------------------------------------------------------------------
Axcelis Technologies, Inc.* 225,200 2,576,288
- --------------------------------------------------------------------------------------------
Bel Fuse, Inc.^ 50,600 1,866,634
- --------------------------------------------------------------------------------------------
Benchmark Electronics, Inc.* 113,900 3,964,859
- --------------------------------------------------------------------------------------------
Brooks Automation, Inc.* 58,600 1,240,562
- --------------------------------------------------------------------------------------------
CTS Corp. 154,300 2,211,119
- --------------------------------------------------------------------------------------------
Cymer, Inc.*^ 373,700 14,402,398
- --------------------------------------------------------------------------------------------
Cypress Semiconductor Corp.* 643,300 13,882,414
- --------------------------------------------------------------------------------------------
DSP Group, Inc.* 449,434 11,447,084
- --------------------------------------------------------------------------------------------
Exar Corp.* 109,000 1,940,200
- --------------------------------------------------------------------------------------------
Excel Technology, Inc.* 90,700 3,058,404
- --------------------------------------------------------------------------------------------
FormFactor, Inc.*^ 76,000 1,545,840
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Genesis Microchip, Inc.*^ 103,600 1,711,472
- --------------------------------------------------------------------------------------------
Genus, Inc.*^ 340,800 1,148,155
- --------------------------------------------------------------------------------------------
Integrated Circuit Systems, Inc.* 289,400 7,970,076
- --------------------------------------------------------------------------------------------
Integrated Device Technology, Inc.* 395,400 6,520,146
- --------------------------------------------------------------------------------------------
Intevac, Inc.*^ 165,400 2,222,976
- --------------------------------------------------------------------------------------------
KEMET Corp.*^ 196,100 2,886,592
- --------------------------------------------------------------------------------------------
Kopin Corp.*^ 241,400 1,470,126
- --------------------------------------------------------------------------------------------
Lam Research Corp.* 200,000 5,114,000
- --------------------------------------------------------------------------------------------
Lexar Media, Inc.*^ 134,000 1,849,200
- --------------------------------------------------------------------------------------------
Merix Corp.*^ 96,100 2,364,060
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Micrel, Inc.*^ 793,300 11,915,366
- --------------------------------------------------------------------------------------------
Mindspeed Technologies, Inc.* 830,500 7,374,840
- --------------------------------------------------------------------------------------------
MIPS Technologies, Inc.* 504,000 2,847,600
- --------------------------------------------------------------------------------------------
MKS Instruments, Inc.*^ 264,200 6,380,430
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PEMSTAR, Inc.*^ 748,870 3,130,277
- --------------------------------------------------------------------------------------------
Photon Dynamics, Inc.*^ 138,500 4,945,835
- --------------------------------------------------------------------------------------------
Planar Systems, Inc.*^ 75,500 1,194,410
- --------------------------------------------------------------------------------------------
Plexus Corp.* 117,000 2,241,720
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PMC-Sierra, Inc.* 589,300 11,727,070
- --------------------------------------------------------------------------------------------
Power Integrations, Inc. 399,700 11,783,156
- --------------------------------------------------------------------------------------------
Semtech Corp. 115,200 2,778,624
- --------------------------------------------------------------------------------------------
SigmaTel, Inc.*^ 108,850 2,711,453
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Silicon Laboratories, Inc.* 98,600 5,558,082
- --------------------------------------------------------------------------------------------
Skyworks Solutions, Inc.^ 886,700 10,001,976
- --------------------------------------------------------------------------------------------
Technitrol, Inc.* 336,000 6,168,960
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Tessera Technologies, Inc.*^ 120,100 2,329,940
- --------------------------------------------------------------------------------------------
Three-Five Systems, Inc.*^ 579,800 2,742,454
- --------------------------------------------------------------------------------------------
Tower Semiconductor Ltd.* 446,600 3,126,200
- --------------------------------------------------------------------------------------------
Ultratech, Inc.* 141,500 3,510,615
- --------------------------------------------------------------------------------------------
Vishay Intertechnology, Inc. 400,000 9,004,000
- --------------------------------------------------------------------------------------------
Vitesse Semiconductor Corp.*^ 264,000 2,109,360
- --------------------------------------------------------------------------------------------
White Electronic Designs Corp.^ 632,000 5,030,720
- --------------------------------------------------------------------------------------------
WJ Communications, Inc.* 539,390 2,713,132
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$262,925,347
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Energy - Independent - 0.4%
- --------------------------------------------------------------------------------------------
Newfield Exploration Co.* 150,000 $7,032,000
- --------------------------------------------------------------------------------------------
Entertainment - 0.1%
- --------------------------------------------------------------------------------------------
Carmike Cinemas, Inc.*^ 56,600 $2,021,186
- --------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.2%
- --------------------------------------------------------------------------------------------
Performance Food Group Co.*^ 90,900 $3,181,500
- --------------------------------------------------------------------------------------------
Furniture & Appliances - 0.2%
- --------------------------------------------------------------------------------------------
Select Comfort Corp.*^ 150,000 $4,060,500
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Gaming & Lodging - 0.9%
- --------------------------------------------------------------------------------------------
Pinnacle Entertainment, Inc.* 203,400 $2,975,742
- --------------------------------------------------------------------------------------------
Prime Hospitality Corp.* 750,000 8,017,500
- --------------------------------------------------------------------------------------------
WMS Industries, Inc.*^ 169,100 4,492,987
- --------------------------------------------------------------------------------------------
$15,486,229
- --------------------------------------------------------------------------------------------
General Merchandise - 0.4%
- --------------------------------------------------------------------------------------------
Big Lots, Inc.* 280,000 $4,032,000
- --------------------------------------------------------------------------------------------
Fred's, Inc. 87,100 2,426,606
- --------------------------------------------------------------------------------------------
$6,458,606
- --------------------------------------------------------------------------------------------
Insurance - 0.2%
- --------------------------------------------------------------------------------------------
American Equity Investment Life Holding Co. 233,700 $2,837,118
- --------------------------------------------------------------------------------------------
Internet - 1.9%
- --------------------------------------------------------------------------------------------
Digital River, Inc.*^ 543,810 $11,904,001
- --------------------------------------------------------------------------------------------
EarthLink, Inc.* 956,100 8,729,193
- --------------------------------------------------------------------------------------------
eCollege.com*^ 163,800 3,284,190
- --------------------------------------------------------------------------------------------
GSI Commerce, Inc.*^ 144,300 1,359,306
- --------------------------------------------------------------------------------------------
Portal Software, Inc.*^ 763,260 6,258,732
- --------------------------------------------------------------------------------------------
Versata, Inc.* 73 146
- --------------------------------------------------------------------------------------------
$31,535,568
- --------------------------------------------------------------------------------------------
Machinery & Tools - 0.4%
- --------------------------------------------------------------------------------------------
Cognex Corp. 200,000 $6,652,000
- --------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 4.2%
- --------------------------------------------------------------------------------------------
Advisory Board Co.* 322,800 $11,643,396
- --------------------------------------------------------------------------------------------
Apria Healthcare Group, Inc.* 275,225 8,603,534
- --------------------------------------------------------------------------------------------
Caremark Rx, Inc.* 500,000 16,130,000
- --------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.* 100,000 5,325,000
- --------------------------------------------------------------------------------------------
LCA-Vision, Inc.* 102,800 2,029,375
- --------------------------------------------------------------------------------------------
Odyssey HealthCare, Inc.*^ 211,150 4,581,955
- --------------------------------------------------------------------------------------------
Omnicell, Inc.*^ 86,900 1,771,022
- --------------------------------------------------------------------------------------------
Option Care, Inc.* 261,100 3,415,188
- --------------------------------------------------------------------------------------------
Select Medical Corp. 200,000 3,194,000
- --------------------------------------------------------------------------------------------
Symbion, Inc.*^ 309,130 5,907,474
- --------------------------------------------------------------------------------------------
VCA Antech, Inc.* 140,000 4,438,000
- --------------------------------------------------------------------------------------------
Vital Images, Inc.*^ 258,400 2,762,296
- --------------------------------------------------------------------------------------------
$69,801,240
- --------------------------------------------------------------------------------------------
Medical Equipment - 6.1%
- --------------------------------------------------------------------------------------------
American Medical Systems Holdings, Inc.* 79,591 $2,240,487
- --------------------------------------------------------------------------------------------
Aspect Medical Systems, Inc.*^ 465,323 8,096,620
- --------------------------------------------------------------------------------------------
Cardiac Science, Inc.*^ 1,082,000 4,706,700
- --------------------------------------------------------------------------------------------
Conceptus, Inc.*^ 589,800 5,473,344
- --------------------------------------------------------------------------------------------
CTI Molecular Imaging, Inc.* 594,600 10,108,200
- --------------------------------------------------------------------------------------------
Cyberonics, Inc.*^ 520,000 12,698,400
- --------------------------------------------------------------------------------------------
Cytyc Corp.* 652,000 10,744,960
- --------------------------------------------------------------------------------------------
EPIX Medical, Inc.*^ 63,200 1,331,624
- --------------------------------------------------------------------------------------------
Fischer Imaging Corp.* 116,900 479,290
- --------------------------------------------------------------------------------------------
IDEXX Laboratories, Inc.* 182,965 9,344,022
- --------------------------------------------------------------------------------------------
Integra LifeSciences Holdings Corp.*^ 80,300 2,546,313
- --------------------------------------------------------------------------------------------
Kinetic Concepts, Inc.* 70,200 2,832,570
- --------------------------------------------------------------------------------------------
Nektar Therapeutics*^ 556,200 10,595,610
- --------------------------------------------------------------------------------------------
OraSure Technologies, Inc.*^ 257,600 2,256,576
- --------------------------------------------------------------------------------------------
STAAR Surgical Co.*^ 554,000 4,310,120
- --------------------------------------------------------------------------------------------
Thoratec Corp.*^ 688,800 8,954,400
- --------------------------------------------------------------------------------------------
Viasys Healthcare, Inc.* 213,290 4,671,051
- --------------------------------------------------------------------------------------------
$101,390,287
- --------------------------------------------------------------------------------------------
Oil Services - 1.0%
- --------------------------------------------------------------------------------------------
Cooper Cameron Corp.* 175,000 $7,738,500
- --------------------------------------------------------------------------------------------
National Oilwell, Inc.* 100,000 2,971,000
- --------------------------------------------------------------------------------------------
Pride International, Inc.* 350,000 5,999,000
- --------------------------------------------------------------------------------------------
$16,708,500
- --------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.1%
- --------------------------------------------------------------------------------------------
Avid Technology, Inc.* 183,200 $7,780,504
- --------------------------------------------------------------------------------------------
Dot Hill Systems Corp.*^ 711,300 9,979,539
- --------------------------------------------------------------------------------------------
Sigma Designs, Inc.*^ 106,600 806,962
- --------------------------------------------------------------------------------------------
$18,567,005
- --------------------------------------------------------------------------------------------
Pharmaceuticals - 2.2%
- --------------------------------------------------------------------------------------------
AtheroGenics, Inc.* 137,400 $2,638,080
- --------------------------------------------------------------------------------------------
Bradley Pharmaceuticals, Inc.*^ 75,280 1,851,888
- --------------------------------------------------------------------------------------------
Connetics Corp.*^ 149,400 3,291,282
- --------------------------------------------------------------------------------------------
Inspire Phamaceuticals, Inc.*^ 530,100 7,267,671
- --------------------------------------------------------------------------------------------
Medicis Pharmaceutical Corp. 352,100 13,862,177
- --------------------------------------------------------------------------------------------
United Therapeutics Corp.*^ 362,800 7,633,312
- --------------------------------------------------------------------------------------------
$36,544,410
- --------------------------------------------------------------------------------------------
Printing & Publishing - 0.7%
- --------------------------------------------------------------------------------------------
Belo Corp. 125,000 $3,487,500
- --------------------------------------------------------------------------------------------
Bowne & Co., Inc. 100,000 1,620,000
- --------------------------------------------------------------------------------------------
McClatchy Co. 44,200 3,031,236
- --------------------------------------------------------------------------------------------
Playboy Enterprises, Inc.^ 250,000 3,827,500
- --------------------------------------------------------------------------------------------
$11,966,236
- --------------------------------------------------------------------------------------------
Real Estate - 0.2%
- --------------------------------------------------------------------------------------------
American Financial Realty Trust 141,600 $2,584,200
- --------------------------------------------------------------------------------------------
Restaurants - 0.7%
- --------------------------------------------------------------------------------------------
Buffalo Wild Wings, Inc.* 83,350 $2,083,750
- --------------------------------------------------------------------------------------------
Cheesecake Factory, Inc.*^ 200,000 9,446,000
- --------------------------------------------------------------------------------------------
$11,529,750
- --------------------------------------------------------------------------------------------
Special Products & Services - 0.2%
- --------------------------------------------------------------------------------------------
Ceradyne, Inc.*^ 58,050 $2,118,825
- --------------------------------------------------------------------------------------------
Rogers Corp. 16,800 873,600
- --------------------------------------------------------------------------------------------
$2,992,425
- --------------------------------------------------------------------------------------------
Specialty Chemicals - 0.6%
- --------------------------------------------------------------------------------------------
Delta & Pine Land Co.^ 253,855 $6,473,303
- --------------------------------------------------------------------------------------------
Georgia Gulf Corp. 124,400 3,384,924
- --------------------------------------------------------------------------------------------
$9,858,227
- --------------------------------------------------------------------------------------------
Specialty Retailers - 5.8%
- --------------------------------------------------------------------------------------------
1-800-Flowers.com, Inc.* 337,300 $3,167,247
- --------------------------------------------------------------------------------------------
A.C. Moore Arts & Crafts, Inc.*^ 191,200 4,349,800
- --------------------------------------------------------------------------------------------
Charming Shoppes, Inc.*^ 1,130,400 7,404,120
- --------------------------------------------------------------------------------------------
Chico's FAS, Inc.* 143,900 6,151,725
- --------------------------------------------------------------------------------------------
Hot Topic, Inc.* 131,150 3,807,285
- --------------------------------------------------------------------------------------------
O'Reilly Automotive, Inc.* 80,000 3,250,400
- --------------------------------------------------------------------------------------------
Pacific Sunwear of California, Inc.* 326,300 7,821,411
- --------------------------------------------------------------------------------------------
PETCO Animal Supplies, Inc.* 403,525 13,106,492
- --------------------------------------------------------------------------------------------
PETsMART, Inc. 554,900 15,059,986
- --------------------------------------------------------------------------------------------
Pier 1 Imports, Inc. 175,000 4,096,750
- --------------------------------------------------------------------------------------------
Regis Corp. 348,350 15,055,687
- --------------------------------------------------------------------------------------------
Too, Inc.*^ 165,000 3,164,700
- --------------------------------------------------------------------------------------------
Tuesday Morning Corp.* 230,600 7,609,800
- --------------------------------------------------------------------------------------------
West Marine, Inc.*^ 77,700 2,311,575
- --------------------------------------------------------------------------------------------
$96,356,978
- --------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.5%
- --------------------------------------------------------------------------------------------
Andrew Corp.* 1,438,900 $25,641,198
- --------------------------------------------------------------------------------------------
Telecommunications - Wireline - 6.8%
- --------------------------------------------------------------------------------------------
ADTRAN, Inc. 557,200 $18,142,432
- --------------------------------------------------------------------------------------------
At Road, Inc.*^ 634,900 7,587,055
- --------------------------------------------------------------------------------------------
C-Cor.net Corp.* 149,800 2,462,712
- --------------------------------------------------------------------------------------------
Carrier Access Corp.*^ 311,100 3,577,650
- --------------------------------------------------------------------------------------------
CommScope, Inc.* 128,400 2,284,236
- --------------------------------------------------------------------------------------------
Corvis Corp.*^ 3,452,500 7,215,725
- --------------------------------------------------------------------------------------------
F5 Networks, Inc.* 468,300 15,496,047
- --------------------------------------------------------------------------------------------
Finisar Corp.*^ 1,064,300 3,054,541
- --------------------------------------------------------------------------------------------
Harmonic, Inc.*^ 631,600 7,730,784
- --------------------------------------------------------------------------------------------
InterDigital Communications Corp.* 243,800 6,475,328
- --------------------------------------------------------------------------------------------
Openwave Systems, Inc.*^ 189,433 2,871,804
- --------------------------------------------------------------------------------------------
Powerwave Technologies, Inc.^ 1,571,600 15,511,692
- --------------------------------------------------------------------------------------------
REMEC, Inc.*^ 617,300 4,321,100
- --------------------------------------------------------------------------------------------
Sonus Networks, Inc.*^ 938,900 5,567,677
- --------------------------------------------------------------------------------------------
Tekelec* 391,200 7,577,544
- --------------------------------------------------------------------------------------------
ViaSat, Inc.* 40,500 1,083,375
- --------------------------------------------------------------------------------------------
Westell Technologies, Inc.*^ 295,400 2,262,764
- --------------------------------------------------------------------------------------------
$113,222,466
- --------------------------------------------------------------------------------------------
Trucking - 1.5%
- --------------------------------------------------------------------------------------------
Central Freight Lines, Inc.* 23,000 $431,250
- --------------------------------------------------------------------------------------------
Heartland Express, Inc.^ 248,131 5,543,247
- --------------------------------------------------------------------------------------------
J.B. Hunt Transport Services, Inc.* 175,000 4,795,000
- --------------------------------------------------------------------------------------------
Knight Transportation, Inc.*^ 245,100 5,953,479
- --------------------------------------------------------------------------------------------
Quality Distribution, Inc.* 167,280 2,335,229
- --------------------------------------------------------------------------------------------
Werner Enterprises, Inc. 290,996 5,549,298
- --------------------------------------------------------------------------------------------
$24,607,503
- --------------------------------------------------------------------------------------------
Total U.S. Stocks $1,546,914,725
- --------------------------------------------------------------------------------------------
Foreign Stocks - 5.1%
- --------------------------------------------------------------------------------------------
Australia - 0.3%
- --------------------------------------------------------------------------------------------
Billabong International Ltd. (Apparel
Manufacturers)^ 708,163 $4,059,628
- --------------------------------------------------------------------------------------------
Bahamas - 0%
- --------------------------------------------------------------------------------------------
Steiner Leisure Ltd. (Consumer Goods & Services)* 28,600 $517,660
- --------------------------------------------------------------------------------------------
Bermuda - 0.2%
- --------------------------------------------------------------------------------------------
W.P. Stewart & Co. Ltd. (Brokerage & Asset
Managers)^ 44,400 $876,456
- --------------------------------------------------------------------------------------------
XOMA Ltd. (Biotechnology)*^ 404,100 2,424,600
- --------------------------------------------------------------------------------------------
$3,301,056
- --------------------------------------------------------------------------------------------
Canada - 3.7%
- --------------------------------------------------------------------------------------------
ATI Technologies, Inc. (Personal Computers &
Peripherals)*^ 289,300 $4,504,401
- --------------------------------------------------------------------------------------------
Axcan Pharma, Inc. (Pharmaceuticals)*^ 66,300 1,300,143
- --------------------------------------------------------------------------------------------
Cognos, Inc. (Computer Software)* 182,500 5,701,300
- --------------------------------------------------------------------------------------------
GSI Lumonics, Inc. (Electronics)^ 199,600 2,824,340
- --------------------------------------------------------------------------------------------
Hydrogenics Corp. (Automotive)*^ 495,900 3,193,596
- --------------------------------------------------------------------------------------------
Neurochem, Inc. (Biotechnology)*^ 102,000 2,076,720
- --------------------------------------------------------------------------------------------
Open Text Corp. (Computer Software)^ 846,800 25,175,364
- --------------------------------------------------------------------------------------------
Vasogen, Inc. (Biotechnology)* 997,800 6,126,492
- --------------------------------------------------------------------------------------------
Zarlink Semiconductor, Inc. (Electronics)* 3,061,835 11,573,736
- --------------------------------------------------------------------------------------------
$62,476,092
- --------------------------------------------------------------------------------------------
Cayman Islands - 0.2%
- --------------------------------------------------------------------------------------------
O2Micro International Ltd. (Electronics)*^ 184,700 $3,354,152
- --------------------------------------------------------------------------------------------
Israel - 0.4%
- --------------------------------------------------------------------------------------------
AudioCodes Ltd. (Telecommunications - Wireline)*^ 83,100 $1,144,287
- --------------------------------------------------------------------------------------------
Orbotech Ltd. (Electronics)*^ 99,300 2,462,640
- --------------------------------------------------------------------------------------------
RADWARE Ltd. (Telecommunications - Wireline)*^ 84,200 2,349,180
- --------------------------------------------------------------------------------------------
Verisity Ltd. (Computer Software)*^ 128,600 1,311,720
- --------------------------------------------------------------------------------------------
$7,267,827
- --------------------------------------------------------------------------------------------
Luxembourg - 0.3%
- --------------------------------------------------------------------------------------------
UTi Worldwide, Inc. (Trucking)^ 95,400 $4,309,218
- --------------------------------------------------------------------------------------------
Total Foreign Stocks $85,285,633
- --------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,375,459,973) $1,632,200,358
- --------------------------------------------------------------------------------------------
Preferred Stocks - 1.2%
- --------------------------------------------------------------------------------------------
Biotechnology
- --------------------------------------------------------------------------------------------
Cryolife, Inc.*+ 119,500 $688,320
- --------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.2%
- --------------------------------------------------------------------------------------------
Autobytel, Inc.* 250,000 $3,502,500
- --------------------------------------------------------------------------------------------
Internet - 0.8%
- --------------------------------------------------------------------------------------------
eCollege.com* 646,200 $12,956,310
- --------------------------------------------------------------------------------------------
Medical Equipment - 0.2%
- --------------------------------------------------------------------------------------------
Conceptus, Inc.*+ 425,000 $3,545,775
- --------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $12,494,475) $20,692,905
- --------------------------------------------------------------------------------------------
Short-Term Obligations - 0.4%
- --------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- --------------------------------------------------------------------------------------------
General Electric Capital Corp., due 3/01/04,
at Amortized Cost $7,408 $7,408,000
- --------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 20.5%
- --------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- --------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 341,357,399 $341,357,399
- --------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,736,719,847) $2,001,658,662
- --------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (19.9)% (332,580,734)
- --------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,669,077,928
- --------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
+ Restricted security.
See notes to financial statements.
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- ---------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 2/29/04
ASSETS
Investments, at value, including $331,558,987 of
securities on loan (identified cost, $1,736,719,847) $2,001,658,662
- ---------------------------------------------------------------------------------------------------
Cash 954
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 33,307,061
- ---------------------------------------------------------------------------------------------------
Receivable for fund shares sold 2,755,978
- ---------------------------------------------------------------------------------------------------
Interest and dividends receivable 176,207
- ---------------------------------------------------------------------------------------------------
Other assets 964
- ---------------------------------------------------------------------------------------------------
Total assets $2,037,899,826
- ---------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $21,799,999
- ---------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 4,906,746
- ---------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 341,357,399
- ---------------------------------------------------------------------------------------------------
Payable to affiliates
- ---------------------------------------------------------------------------------------------------
Management fee 122,466
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 184,243
- ---------------------------------------------------------------------------------------------------
Distribution and service fee 64,994
- ---------------------------------------------------------------------------------------------------
Administrative fee 2,412
- ---------------------------------------------------------------------------------------------------
Program manager fee 14
- ---------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 383,625
- ---------------------------------------------------------------------------------------------------
Total liabilities $368,821,898
- ---------------------------------------------------------------------------------------------------
Net assets $1,669,077,928
- ---------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $1,888,025,069
- ---------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 264,938,815
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (472,731,578)
- ---------------------------------------------------------------------------------------------------
Accumulated net investment loss (11,154,378)
- ---------------------------------------------------------------------------------------------------
Net assets $1,669,077,928
- ---------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 104,300,254
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $1,145,520,920
- ---------------------------------------------------------------------------------------------------
Shares outstanding 71,185,596
- ---------------------------------------------------------------------------------------------------
Net asset value per share $16.09
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$16.09) $17.07
- ---------------------------------------------------------------------------------------------------
Class B shares
Net assets $306,412,412
- ---------------------------------------------------------------------------------------------------
Shares outstanding 19,617,039
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.62
- ---------------------------------------------------------------------------------------------------
Class C shares
Net assets $90,002,507
- ---------------------------------------------------------------------------------------------------
Shares outstanding 5,754,384
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.64
- ---------------------------------------------------------------------------------------------------
Class I shares
Net assets $120,327,146
- ---------------------------------------------------------------------------------------------------
Shares outstanding 7,318,348
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.44
- ---------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $6,097,215
- ---------------------------------------------------------------------------------------------------
Shares outstanding 379,436
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.07
- ---------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $5,254
- ---------------------------------------------------------------------------------------------------
Shares outstanding 327
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.07
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class 529A shares
Net assets $344,103
- ---------------------------------------------------------------------------------------------------
Shares outstanding 21,459
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $16.04
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$16.04) $17.02
- ---------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $119,897
- ---------------------------------------------------------------------------------------------------
Shares outstanding 7,707
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.56
- ---------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $248,474
- ---------------------------------------------------------------------------------------------------
Shares outstanding 15,958
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.57
- ---------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares is 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 (unaudited)
- --------------------------------------------------------------------------------------------------
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 SIX MONTHS ENDED 2/29/04
NET INVESTMENT INCOME (LOSS)
Income
- --------------------------------------------------------------------------------------------------
Dividends $1,507,095
- --------------------------------------------------------------------------------------------------
Income on securities loaned 398,755
- --------------------------------------------------------------------------------------------------
Interest 212,497
- --------------------------------------------------------------------------------------------------
Total investment income $2,118,347
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $7,067,164
- --------------------------------------------------------------------------------------------------
Trustees' compensation 18,144
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 1,768,317
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 1,893,538
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 1,454,900
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 436,502
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 8,428
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 8
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 444
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 484
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 1,015
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 317
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 121
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 254
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 4
- --------------------------------------------------------------------------------------------------
Administrative fee 48,171
- --------------------------------------------------------------------------------------------------
Custodian fee 177,524
- --------------------------------------------------------------------------------------------------
Printing 107,145
- --------------------------------------------------------------------------------------------------
Postage 87,824
- --------------------------------------------------------------------------------------------------
Auditing fees 17,369
- --------------------------------------------------------------------------------------------------
Legal fees 2,935
- --------------------------------------------------------------------------------------------------
Miscellaneous 173,244
- --------------------------------------------------------------------------------------------------
Total expenses $13,263,852
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (5,754)
- --------------------------------------------------------------------------------------------------
Net expenses $13,258,098
- --------------------------------------------------------------------------------------------------
Net investment loss $(11,139,751)
- --------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $158,056,079
- --------------------------------------------------------------------------------------------------
Foreign currency transactions (1,005)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $158,055,074
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation
- --------------------------------------------------------------------------------------------------
Investments $6,135,593
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $164,190,667
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $153,050,916
- --------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/29/04 8/31/03
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $(11,139,751) $(14,400,066)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 158,055,074 (44,256,550)
- --------------------------------------------------------------------------------------------------
Net unrealized gain on investments 6,135,593 302,185,359
- -------------------------------------------------------- ------------ ------------
Increase in net assets from operations $153,050,916 $243,528,743
- -------------------------------------------------------- ------------ ------------
Net increase in net assets from fund share
transactions $62,475,644 $20,105,464
- -------------------------------------------------------- ------------ ------------
Total increase in net assets $215,526,560 $263,634,207
- -------------------------------------------------------- ------------ ------------
NET ASSETS
At beginning of period $1,453,551,368 $1,189,917,161
- --------------------------------------------------------------------------------------------------
At end of period (including accumulated net
investment loss of $11,154,378 and $14,627,
respectively.) $1,669,077,928 $1,453,551,368
- --------------------------------------------------------------------------------------------------
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 semiannual period
and 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) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------------------------------------------
CLASS A 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning
of period $14.57 $11.99 $16.17 $25.00 $14.59 $10.65
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.10) $(0.13) $(0.18) $(0.20) $(0.26) $(0.16)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investments and foreign
currency 1.62 2.71 (4.00) (5.02) 11.28 4.24
- ------------------------------- ------- ------ ------ ------ ------ ------
Total from investment
operations $1.52 $2.58 $(4.18) $(5.22) $11.02 $4.08
- ------------------------------- ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 -- -- (0.00)+++ (0.30) -- --
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- (0.08) -- --
- ------------------------------- ------- ------ ------ ------ ------ ------
Total distributions
declared to shareholders $-- $-- $(0.00)+++ $(3.61) $(0.61) $(0.14)
- ------------------------------- ------- ------ ------ ------ ------ ------
Net asset value, end of
period $16.09 $14.57 $11.99 $16.17 $25.00 $14.59
- ------------------------------- ------- ------ ------ ------ ------ ------
Total return (%)(+) 10.43++ 21.52 (25.85) (22.37) 76.63 38.44
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------------------------------------------
CLASS A (CONTINUED) 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.51+ 1.58 1.58 1.52 1.53 1.51
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.27)+ (1.11) (1.21) (1.06) (1.17) (1.13)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 48 104 102 49 103 104
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of
period
(000 Omitted) $1,145,521 $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)
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEARS ENDED 8/31
ENDED ------------------------------------------------------------------------
CLASS B 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $14.19 $11.75 $15.95 $24.71 $14.46 $10.60
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.14) $(0.21) $(0.28) $(0.32) $(0.39) $(0.24)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 1.57 2.65 (3.92) (4.97) 11.17 4.21
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $1.43 $2.44 $(4.20) $(5.29) $10.78 $3.97
- ------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 -- -- (0.00)+++ (0.29) -- --
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- (0.08) -- --
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $(0.00)+++ $(3.47) $(0.53) $(0.11)
- ------------------------------------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $15.62 $14.19 $11.75 $15.95 $24.71 $14.46
- --------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 10.08++ 20.77 (26.33) (22.92) 75.50 37.56
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ------------------------------------------------------------------------
CLASS B (CONTINUED) 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.16+ 2.23 2.23 2.17 2.18 2.16
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.92)+ (1.76) (1.86) (1.70) (1.81) (1.76)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 48 104 102 49 103 104
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $306,412 $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 from January 1, 2000,
through August 31, 2000. Prior to January 1, 2000, the investment adviser agreed to maintain the expenses of the fund,
exclusive of management and distribution and service fees, at not more than 0.25% 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)
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------
CLASS C 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $14.21 $11.77 $15.97 $24.73 $14.47 $10.61
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.14) $(0.21) $(0.28) $(0.32) $(0.39) $(0.24)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.57 2.65 (3.92) (4.97) 11.18 4.21
- ------------------------------------- -------- ------ ------ ------ ------ ------
Total from investment operations $1.43 $2.44 $(4.20) $(5.29) $10.79 $3.97
- ------------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 -- -- (0.00)+++ (0.29) -- --
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- (0.08) -- --
- ------------------------------------- -------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $(0.00)+++ $(3.47) $(0.53) $(0.11)
- ------------------------------------- -------- ------ ------ ------ ------ ------
Net asset value, end of period $15.64 $14.21 $11.77 $15.97 $24.73 $14.47
- ------------------------------------- -------- ------ ------ ------ ------ ------
Total return (%) 10.06++ 20.73 (26.34) (22.87) 75.57 37.53
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.16+ 2.23 2.23 2.17 2.18 2.16
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.92)+ (1.76) (1.86) (1.70) (1.79) (1.78)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 48 104 102 49 103 104
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $90,003 $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 from January 1, 2000,
through August 31, 2000. Prior to January 1, 2000, the investment adviser agreed to maintain the expenses of the fund,
exclusive of management and distribution and service fees, at not more than 0.25% 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)
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------
CLASS I 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $14.86 $12.19 $16.37 $25.26 $14.71 $10.70
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.07) $(0.09) $(0.13) $(0.13) $(0.18) $(0.11)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.65 2.76 (4.05) (5.09) 11.37 4.27
- ---------------------------------------- ------- ------ ------ ------ ------ ------
Total from investment operations $1.58 $2.67 $(4.18) $(5.22) $11.19 $4.16
- ---------------------------------------- ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $(3.28) $(0.64) $(0.15)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.00)+++ (0.31) -- --
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- (0.08) -- --
- ---------------------------------------- ------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $(0.00)+++ $(3.67) $(0.64) $(0.15)
- ---------------------------------------- ------- ------ ------ ------ ------ ------
Net asset value, end of period $16.44 $14.86 $12.19 $16.37 $25.26 $14.71
- ---------------------------------------- ------- ------ ------ ------ ------ ------
Total return (%) 10.63++ 21.90 (25.58) (22.09) 77.22 39.06
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.17+ 1.23 1.23 1.17 1.18 1.16
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.93)+ (0.75) (0.86) (0.71) (0.83) (0.77)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 48 104 102 49 103 104
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $120,327 $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 fee, at not more than 0.25% of average daily net assets, effective November 1, 1997 through December 31, 1999,
and 0.30% through August 31, 2000. Prior to November 1, 1997, subject to reimbursement by the fund, the investment adviser
agreed to maintain the expenses of the fund at not more than 1.50% of the fund's average daily net assets, and the
investment adviser and shareholder servicing agent did not impose any of their fees. To the extent actual expenses were
over/under these limitations and the waivers had not been in place for the periods indicated, the net investment 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)
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS PERIOD
ENDED ENDED
CLASS R1 2/29/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $14.57 $11.43
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.11) $(0.11)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 1.61 3.25
- ---------------------------------------------------------------------- -------- ------
Total from investment operations $1.50 $3.14
- ---------------------------------------------------------------------- -------- ------
Net asset value, end of period $16.07 $14.57
- ---------------------------------------------------------------------- -------- ------
Total return (%) 10.30++ 27.47++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.67+ 1.78+
- -------------------------------------------------------------------------------------------------------
Net investment loss (1.47)+ (1.26)+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 48 104
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $6,097 $1,824
- -------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 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
PERIOD
ENDED
CLASS R2 2/29/04*
(UNAUDITED)
Net asset value, beginning of period $15.23
- ------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.09)
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 0.93
- -------------------------------------------------------------------------------- -------
Total from investment operations $0.84
- -------------------------------------------------------------------------------- -------
Net asset value, end of period $16.07
- -------------------------------------------------------------------------------- -------
Total return (%) 5.52++
- ------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.82+
- ------------------------------------------------------------------------------------------
Net investment loss (1.64)+
- ------------------------------------------------------------------------------------------
Portfolio turnover 48
- ------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $5
- ------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through
February 29, 2004.
+ 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
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
CLASS 529A 2/29/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $14.53 $11.99 $11.85
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.12) $(0.16) $(0.01)
- ---------------------------------------------------------------- -------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 1.63 2.70 0.15
- ---------------------------------------------------------------- ------- ------ ------
Total from investment operations $1.51 $2.54 $0.14
- ----------------------------------------------------------------- ------ ------ ------
Net asset value, end of period $16.04 $14.53 $11.99
- ----------------------------------------------------------------- ------ ------ ------
Total return (%)(+) 10.39++ 21.18 1.18++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.77+ 1.84 1.83+
- --------------------------------------------------------------------------------------------------------------------
Net investment loss (1.54)+ (1.35) (1.20)+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 48 104 102
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $344 $180 $10
- --------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A 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.
Financial Highlights - continued
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
CLASS 529B 2/29/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $14.15 $11.75 $11.62
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.16) $(0.24) $(0.02)
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 1.57 2.64 0.15
- -------------------------------------------------------------- --------- ------ ------
Total from investment operations $1.41 $2.40 $0.13
- -------------------------------------------------------------- --------- ------ ------
Net asset value, end of period $15.56 $14.15 $11.75
- -------------------------------------------------------------- --------- ------ ------
Total return (%) 9.96++ 20.43 1.12++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 2.41+ 2.49 2.48+
- --------------------------------------------------------------------------------------------------------------------
Net investment loss (2.18)+ (1.99) (1.87)+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 48 104 102
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $120 $84 $6
- --------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B 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.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
CLASS 529C 2/29/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $14.16 $11.77 $11.64
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.16) $(0.24) $(0.02)
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 1.57 2.63 0.15
- --------------------------------------------------------------- -------- ------ ------
Total from investment operations $1.41 $2.39 $0.13
- --------------------------------------------------------------- -------- ------ ------
Net asset value, end of period $15.57 $14.16 $11.77
- --------------------------------------------------------------- -------- ------ ------
Total return (%) 9.96++ 20.31 1.12++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 2.41+ 2.50 2.48+
- --------------------------------------------------------------------------------------------------------------------
Net investment loss (2.18)+ (1.99) (1.88)+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 48 104 102
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $249 $147 $5
- --------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C 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.
See notes to financial statements.
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ------------------------------------------------------------------------------
(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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market prices where current market
prices are readily available, or the fund may fair value portfolio securities
under the direction of the Board of Trustees when a determination is made that
current market prices are not readily available. Equity securities in the
fund's portfolio for which market quotations are available are valued at the
last sale or official closing price as reported by an independent pricing
service 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. Equity securities traded over the counter are valued at the
last sales price traded each day as reported by an independent pricing
service, or to the extent there are no sales reported, such securities are
valued on the basis of quotations obtained from brokers and dealers. Equity
securities for which it is determined that current market prices are not
readily available will be fair valued under the direction of the Board of
Trustees. The fund may also fair value foreign equity securities in cases
where closing market prices are not readily available or are deemed not
reflective of readily available market prices. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the fund calculates its net
asset value (generally, the close of the NYSE) that may impact the value of
securities traded in these foreign markets. In these cases, the fund may
utilize information from an external vendor or other sources to adjust closing
market prices of foreign equity securities to reflect what it believes to be
the fair value of the securities as of the fund's valuation time. Because the
frequency of significant events is not predictable, fair valuation of foreign
equity securities may occur on a frequent basis. Short-term obligations with a
remaining maturity in excess of 60 days will be valued upon dealer-supplied
valuations. All other short-term obligations in the fund's portfolio are
valued at amortized cost, which constitutes market value as determined by the
Board of Trustees. Money market mutual funds are valued at net asset value.
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.
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 - 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.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or 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 accounting principles generally accepted in the United States
of America. 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. This amount, for the six months ended February 29, 2004, 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.
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
- ------------------------------------------------------------------------------
The fund paid no distributions for the year ended August 31, 2003.
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)
---------------------------------------------------------
Post-October capital loss deferral (4,559,698)
---------------------------------------------------------
Unrealized appreciation 257,619,886
---------------------------------------------------------
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 investment adviser has
contractually agreed to reduce its management fee to 0.85% of the fund's
average daily net assets in excess of $3 billion. This contractual waiver may
be rescinded by MFS only with the approval of the fund's Board of Trustees.
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 retired Trustees. Included
in Trustees' compensation is a pension expense of $619 for retired Trustees
for the six months ended February 29, 2004.
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 up to the following annual percentage rates 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%
----------------------------------------------------------
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to Class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in Class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of Class R2 shares to MFS
for the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor,
received $65,963 and $735 for the six months ended February 29, 2004 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 R1, Class R2, 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.50% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the six months ended
February 29, 2004, amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $24,773 $1,652 $847 $-- $--
- -----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $77 $6 $25
- -----------------------------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February 29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual Percentage Rates 0.35% 1.00% 1.00% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Effective Annual Percentage Rates 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 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 six months ended February 29, 2004 were as follows:
CLASS A CLASS B CLASS C CLASS 529BCLASS 529C
Contingent Deferred Sales
Charges Imposed $17,348 $221,140 $4,513 $20 $--
- --------------------------------------------------------------------------------
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 - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, 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%, which amounted to
$863,958 for the six months ended February 29, 2004. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $427,599 for the six months ended February 29, 2004, as well as
other expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$826,488,380 and $732,142,203, 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 $1,737,903,183
- --------------------------------------------------------------------------------
Gross unrealized appreciation $319,620,355
- --------------------------------------------------------------------------------
Gross unrealized depreciation (55,864,876)
- --------------------------------------------------------------------------------
Net unrealized appreciation $263,755,479
- --------------------------------------------------------------------------------
(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:
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 17,617,138 $271,890,843 35,664,447 $430,133,582
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (15,365,924) (236,491,301) (35,299,458) (415,394,400)
- ------------------------------------------------------------------------------------------------------------
Net increase 2,251,214 $35,399,542 364,989 $14,739,182
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 2,793,243 $41,833,966 5,358,532 $62,805,270
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (2,315,716) (34,858,609) (6,028,202) (69,524,682)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) 477,527 $6,975,357 (669,670) $(6,719,412)
- ------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 835,792 $12,511,838 1,776,376 $20,636,995
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,020,012) (15,298,822) (3,251,716) (37,093,561)
- ------------------------------------------------------------------------------------------------------------
Net decrease (184,220) $(2,786,984) (1,475,340) $(16,456,566)
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 2,605,485 $40,996,921 3,929,334 $47,692,689
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,401,365) (22,328,845) (1,723,884) (21,047,940)
- ------------------------------------------------------------------------------------------------------------
Net increase 1,204,120 $18,668,076 2,205,450 $26,644,749
- ------------------------------------------------------------------------------------------------------------
Six months ended Period ended
2/29/04 8/31/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 378,572 $5,899,684 205,386 $2,552,772
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (124,327) (1,935,922) (80,195) (967,828)
- ------------------------------------------------------------------------------------------------------------
Net increase 254,245 $3,963,762 125,191 $1,584,944
- ------------------------------------------------------------------------------------------------------------
Period ended
2/29/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 327 $5,020
- -------------------------------------------------------------------------
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 9,370 $145,533 12,297 $145,200
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (276) (4,217) (763) (10,347)
- ------------------------------------------------------------------------------------------------------------
Net increase 9,094 $141,316 11,534 $134,853
- ------------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 2,105 $31,704 5,471 $63,409
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (316) (4,636) (22) (252)
- ------------------------------------------------------------------------------------------------------------
Net increase 1,789 $27,068 5,449 $63,157
- ------------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 5,618 $83,180 9,964 $114,725
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (48) (693) (15) (168)
- ------------------------------------------------------------------------------------------------------------
Net increase 5,570 $82,487 9,949 $114,557
- ------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1, December 31, 2002, through August 31, 2003.
** For the period from the inception of Class R2, October 31, 2003, through February 29, 2004.
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the six months ended February 29, 2004, was $5,514.
The fund had no borrowings during the period.
(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 February 29,
2004, the fund owned the following restricted securities, excluding securities
issued under Rule 144A, constituting 0.25% 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
DESCRIPTION ACQUISITION SHARES COST VALUE
Conceptus, Inc. 2/25/04 425,000 $3,612,500 $3,545,775
- --------------------------------------------------------------------------------
Cryolife, Inc. 1/22/04 119,500 746,875 688,320
- --------------------------------------------------------------------------------
$4,234,095
- --------------------------------------------------------------------------------
(8) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding regarding
disclosure of brokerage allocation practices in connection with fund sales.
Under the terms of the settlement, in which MFS neither admitted nor denied
any wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement and $50
million in penalty to certain MFS funds, pursuant to a plan to be approved by
an independent distribution consultant. The agreement with the SEC is
reflected in an order of the SEC. The settlement order states that MFS failed
to adequately disclose to the Boards of Trustees and to shareholders of the
MFS funds the specifics of its preferred arrangements with certain brokerage
firms selling MFS fund shares. The settlement order states that MFS had in
place policies designed to obtain best execution of all fund trades.
As part of the settlement, MFS also agreed to retain an independent compliance
consultant to review the completeness of its disclosure to fund trustees and
to fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial advisers who support the sale of fund
shares. The brokerage allocation practices which were the subject of this
proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the Securities and
Exchange Commission ("SEC"), the New York Attorney General ("NYAG") and the
Bureau of Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in certain
MFS fund prospectuses regarding market timing and related matters (the "February
Settlements"). These regulators alleged that prospectus language for certain MFS
funds was false and misleading because, although the prospectuses for those
funds in the regulators' view indicated that the funds prohibited market timing,
MFS did not limit trading activity in 11 domestic large cap stock, high grade
bond and money market funds. MFS' former Chief Executive Officer, John W.
Ballen, and former President, Kevin R. Parke, have also reached agreement with
the SEC (Messrs. Ballen and Parke resigned their director and officer positions
with MFS on February 13, 2004). Under the terms of the February Settlements, MFS
and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds offered
to retail investors ("Retail Funds"), which has been funded by MFS and of which
$50 million is characterized as a penalty. This pool will be distributed in
accordance with a methodology developed by an independent distribution
consultant in consultation with MFS and the Boards of Trustees of the Retail
Funds, and acceptable to the SEC. MFS has further agreed with the NYAG to reduce
its management fees in the aggregate amount of approximately $25 million
annually over the next five years, and not to increase certain management fees
during this period. MFS has also paid an administrative fine to NH in the amount
of $1 million, which will be used for investor education purposes (NH will
retain $250,000 and $750,000 will be contributed to the North American
Securities Administrators Association's Investor Protection Trust). In addition,
MFS and the Retail Funds will adopt certain governance changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as
trustees of all MFS funds, and Mr. Ballen resigned his position as President
of all MFS funds, effective February 6, 2004. Messrs. Ballen and Parke will
not be returning to MFS or the MFS funds after their suspensions.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The
lawsuits variously have been commenced as class actions or individual actions
on behalf of investors who purchased, held or redeemed shares of the funds
during specified periods, as class actions on behalf of participants in
certain retirement plan accounts, or as derivative actions on behalf of the
MFS funds. The lawsuits generally allege that some or all of the defendants
(i) permitted or acquiesced in market timing and/or late trading in some of
the MFS funds, inadequately disclosed MFS' internal policies concerning market
timing and such matters, and received excessive compensation as fiduciaries to
the MFS fund, or (ii) permitted or acquiesced in the improper use of fund
assets by MFS to support the distribution of fund shares and inadequately
disclosed MFS' use of fund assets in this manner. The actions assert that some
or all of the defendants violated the federal securities laws, including the
Securities Act of 1933 and the Securities Exchange Act of 1934, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, the Employee
Retirement Income Security Act of 1974, as well as fiduciary duties and other
violations of common law. The lawsuits seek unspecified compensatory damages.
Insofar as any of the actions is appropriately brought derivatively on behalf
of any of the MFS funds, any recovery will inure to the benefit of the funds.
The defendants are reviewing the allegations of the multiple complaints and
will respond appropriately. Additional lawsuits based on similar allegations
may be filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS
has established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the
funds, and will pay $50 million to compensate certain MFS funds based upon the
amount of brokerage commissions allocated in recognition of fund sales. It is
not clear whether these amounts will be sufficient to compensate shareholders
for all of the damage they allegedly sustained, whether certain shareholders
or putative class members may have additional claims to compensation, or
whether the damages that may be awarded in any of the actions will exceed
these amounts. In the event the MFS funds incur any losses, costs or expenses
in connection with such lawsuits, the Boards of Trustees of the affected funds
may pursue claims on behalf of such funds against any party that may have
liability to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- --------------------------------------------------------------------------------------------------------------
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
JOHN W. BALLEN(2)(5) (born 09/12/59) DAVID H. GUNNING(4) (born 05/30/42)
Trustee and President Trustee
Massachusetts Financial Services Company, Chief Cleveland-Cliffs Inc. (mining products and service
Executive Officer and Director (until February provider), Vice Chairman/Director (since April
2004) 2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
ROBERT J. MANNING(2)(7) (born 10/20/63) Electric Holdings, Inc. (welding equipment
Trustee manufacturer), Director; Southwest Gas Corporation
Massachusetts Financial Services Company, Chief (natural gas distribution company), Director
Executive Officer, President, Chief Investment
Officer and Director WILLIAM R. GUTOW (born 09/27/41)
Trustee
KEVIN R. PARKE(2)(5) (born 12/14/59) Private investor and real estate consultant;
Trustee Capitol Entertainment Management Company (video
Massachusetts Financial Services Company, franchise), Vice Chairman
President, Chief Investment Officer and Director
(until February 2004) AMY B. LANE(4) (born 02/08/53)
Trustee
ROBERT C. POZEN(2)(7) (born 08/08/46) Retired; Merrill Lynch & Co., Inc., Managing
Trustee Director, Investment Banking Group (1997 to
Massachusetts Financial Services Company, Chairman February 2001); Borders Group, Inc. (book and
(since February 2004); Harvard Law School music retailer), Director; Federal Realty
(education), John Olin Visiting Professor (since Investment Trust (real estate investment trust),
July 2002); Secretary of Economic Affairs, The Trustee
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice ABBY M. O'NEILL(3) (born 04/27/28)
Chairman (June 2000 to December 2001); Fidelity Trustee
Management & Research Company (investment Private investor; Rockefeller Financial Services,
adviser), President (March 1997 to July 2001); The Inc. (investment advisers), Chairman and Chief
Bank of New York (financial services), Director; Executive Officer
Bell Canada Enterprises (telecommunications),
Director; Telesat (satellite communications), LAWRENCE T. PERERA (born 06/23/35)
Director Trustee
Hemenway & Barnes (attorneys), Partner
JEFFREY L. SHAMES(2)(6) (born 06/02/55)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Chairman Trustee
(until February 2004) Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
J. ATWOOD IVES (born 05/01/36) CBL & Associates Properties, Inc. (real estate
Co-Chair investment trust), Director
Private investor; KeySpan Corporation (energy
related services), Director; Eastern Enterprises J. DALE SHERRATT (born 09/23/38)
(diversified services company), Chairman, Trustee Trustee
and Chief Executive Officer (until November 2000) Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WARD SMITH (born 09/13/30) (investor in health care companies), Managing
Co-Chair General Partner (since 1993); Cambridge
Private investor Nutraceuticals (professional nutritional
products), Chief Executive Officer (until May
LAWRENCE H. COHN, M.D. (born 03/11/37) 2001)
Trustee
Brigham and Women's Hospital, Chief of Cardiac ELAINE R. SMITH (born 04/25/46)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Independent health care industry consultant
(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.
(3) Retired December 31, 2003.
(4) Appointed Trustee on January 27, 2004.
(5) Resigned February 6, 2004.
(6) Resigned on February 13, 2004.
(7) Appointed Trustee on February 24, 2004.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN(1) (born 09/12/59) RICHARD M. HISEY (born 08/29/58)
Trustee and President Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Senior
Executive Officer and Director (until February Vice President (since July 2002); The Bank of New
2004) York, Senior Vice President (September 2000 to
July 2002); Lexington Global Asset Managers, Inc.,
JAMES R. BORDEWICK, JR. (born 03/06/59) Executive Vice President and Chief Financial
Assistant Secretary and Assistant Clerk Officer (prior to September 2000); Lexington
Massachusetts Financial Services Company, Senior Funds, Treasurer (prior to September 2000)
Vice President and Associate General Counsel
ROBERT J. MANNING(2) (born 10/20/63)
STEPHEN E. CAVAN (born 11/06/53) President
Secretary and Clerk Massachusetts Financial Services Company, Chief
Massachusetts Financial Services Company, Senior Executive Officer, President, Chief Investment
Vice President, General Counsel and Secretary Officer and Director
STEPHANIE A. DESISTO (born 10/01/53) ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers President
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus JAMES O. YOST (born 06/12/60)
Investment Management, Senior Vice President Assistant Treasurer
(prior to November 2002) Massachusetts Financial Services Company, Senior
Vice President
ROBERT R. FLAHERTY (born 09/18/63)
Assistant Treasurer
Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
(1) Resigned on February 6, 2004.
(2) Appointed President on February 6, 2004.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five
years thereafter to elect Trustees. Each Trustee and officer will hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Mr. Shames has served as a Trustee of the Trust continually since originally appointed until February 13,
2004. Messrs. Cohn, Sherratt and Smith, have served in their capacity as Trustee of the Trust continuously
since originally elected or appointed. Messrs. 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. Ballen was elected by
shareholders and served as a Trustee of the Trust from January 1, 2002 until February 6, 2004, and Mr. Parke
served as a Trustee of the Trust from January 1, 2002, until February 6, 2004. Ms. O'Neill retired on December
31, 2003. Mr. Gunning and Ms. Lane have served as Trustees of the Trust since January 27, 2004, and Messrs.
Manning and Pozen have served as Trustees since February 24, 2004.
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 109 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 PORTFOLIO MANAGERS
Massachusetts Financial Services Company Robert A. Henderson
500 Boylston Street, Boston, MA Donald F. Pitcher, Jr.
02116-3741
CUSTODIAN
DISTRIBUTOR State Street Bank and Trust Company
MFS Fund Distributors, Inc. 225 Franklin Street, Boston, MA
500 Boylston Street, Boston, MA 02110
02116-3741
- ------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. The prospectus contains complete information on the fund's
investment objective(s), the risks associated with an investment in the fund,
the fees, charges and expenses involved, as well as other information about
the fund. The prospectus should be read carefully before investing.
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 and procedures 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 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
NDF-SEM-4/04 161M
MFS(R) Mutual Funds
SEMIANNUAL REPORT 2/29/04
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
The fund seeks to provide capital appreciation.
- -------------------------------------------------------------------------------
To view MFS' statement concerning regulatory issues affecting the mutual fund
industry and the firm, please visit mfs.com.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 9
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ----------------------------------------------------
FINANCIAL STATEMENTS 16
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 25
- ----------------------------------------------------
TRUSTEES AND OFFICERS 34
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 36
- ----------------------------------------------------
CONTACT INFORMATION 37
- ----------------------------------------------------
ASSET ALLOCATION 38
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
As the firm's new Chief Executive Officer, I want to thank you for your
continued trust in MFS and tell you about the series of actions we have taken
since our recent settlements with the regulators. These actions are designed
to enhance the governance structure of the MFS funds, tighten our business
practices, and strengthen the management team at MFS.
In early February, Robert Pozen joined MFS as non-executive Chairman. A
seasoned veteran of the mutual fund industry, Bob has held prior positions as
President of Fidelity Management & Research Company, as Associate General
Counsel of the Securities and Exchange Commission, and as a visiting professor
at Harvard Law School.
In an effort to develop and implement policies that we believe will set a new
standard in regulatory compliance, MFS has hired two new senior executives.
Jeffrey Carp is joining us as General Counsel with responsibility for all of
our legal affairs. Previously he was a senior partner with the law firm of
Hale and Dorr LLP. Also joining MFS in the new position of Executive Vice
President of Regulatory Affairs is Maria Dwyer, who returned to the firm after
serving as a senior executive at Fidelity. At MFS, Maria is in charge of
compliance, internal audit, and fund treasury.
In the area of governance, we have taken steps to enhance the independence of
our funds' boards of trustees to better protect the interests of shareholders.
We have independent board chairs and at least 75% of the trustees are
independent. The trustees will appoint not only their own counsel but also an
independent compliance officer. This officer will assist the boards and their
committees in monitoring the MFS funds' compliance with federal and state
regulations.
In February, MFS reached agreements with federal and state regulators to
settle their administrative proceedings against the firm and two senior
executives in connection with market timing and related issues. Under the
terms of the settlements, we agreed to pay $225 million to compensate affected
retail fund shareholders. The $225 million will be distributed in accordance
with a distribution plan developed by an independent consultant.
We have further agreed with state regulators to reduce management fees on
certain funds we advise by approximately $25 million annually over the next
five years and to pay an administrative fine of $1 million, which will be used
for the purpose of investor education. We have introduced a set of policies
designed to protect the MFS funds and MFS fund shareholders from market timing
abuses. By July, all MFS retail funds, except money market funds, will have a
2% redemption fee on short-term trades. Our global, international, high-yield,
mid- and small-cap funds will impose the 2% fee on redemptions or exchanges of
fund shares made within 30 calendar days of a share purchase. For all other
MFS funds, except money market funds, the 2% fee will be imposed on
redemptions or exchanges made within 5 business days of a share purchase. See
the fund prospectus for more information.
We continue to use fair value pricing, a strategy that minimizes the potential
for investors to take advantage of "stale" prices. These can occur, as one
example, when funds own foreign securities whose prices close on overseas
exchanges in different time zones. At the same time, we enhanced our
monitoring of excessive trading. We did so by increasing our staff and
updating our computer systems to improve our ability to detect excessive
trading in our funds. Finally, we are supporting industry efforts to establish
a "hard" 4 p.m. close on all trading, which would prevent the possibility of
late trading.
In March, MFS reached a second settlement with the SEC under an administrative
proceeding resolving the SEC's investigation into how we disclosed brokerage
allocation practices in connection with fund sales. According to the
settlement order, we did not effectively disclose the potential conflict of
interest that may arise from these arrangements.
Under the terms of the settlement, MFS has agreed to pay one dollar in
disgorgement and $50 million in penalty to MFS fund shareholders. The
settlement noted that MFS had policies in place designed to obtain best
execution of all trades of securities within MFS portfolios.
This past November, MFS eliminated the above mentioned practice of directing
brokerage commissions to certain firms in recognition of fund sales.
Additionally, we announced in March that we would ban the use of soft dollars
to acquire third-party securities research and market data. Soft dollars are
permitted under federal securities laws. In fact, it is a common industry
practice to use a portion of the brokerage commissions to pay for certain
research and execution products and services that are provided to asset
managers. MFS will now pay cash out of its own pocket for third-party research
and market data.
MFS continues to be financially strong, with more than U.S. $140 billion (as
of 12/31/03) in assets under management, which continued to be stable during
the first quarter of 2004. We also have the full support of our parent
company, Sun Life Financial, an internationally diversified financial services
firm that manages more than U.S. $269 billion (as of 12/31/03).
We chose to settle these two proceedings with the SEC so we could concentrate
on serving our fund shareholders. As Chief Investment Officer, my focus is on
ensuring that our portfolio teams work closely together and take full
advantage of all the resources available to them to deliver the best possible
investment performance.
As the inventor of the open-end mutual fund in America in 1924, MFS has a
strong tradition and culture of innovation. By strengthening our business and
governance practices, we believe we have an unprecedented opportunity to set a
new standard in the mutual fund industry.
As I look ahead, I do so with confidence. The collaboration among MFS
employees, many of whom have worked at the firm for their entire careers,
continues as we remain singularly dedicated to our clients. It has been our
sincere privilege to serve you, and we thank you for the confidence that you
have shown in MFS.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer
MFS Investment Management(R)
March 15, 2004
Note to Shareholders: On February 6, 2004, Jeffrey L. Shames retired as
Chairman of MFS. Robert Pozen was named as non-executive Chairman. Also,
on February 6, 2004, Robert J. Manning was appointed Chief Executive Officer,
President, and Chief Investment Officer.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 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 turnaround in global stock markets that began in the spring of 2003
continued for most of the six-month period ended February 29, 2004. The
release of increasingly positive economic numbers as the period progressed,
particularly with regard to corporate earnings and GDP (gross domestic
product) growth, helped drive the equity rally. By late 2003, corporate
capital spending, which had been weak for some time, had also begun to
accelerate. Another driver of the equity rally, in our view, was the U.S.
Federal Reserve Board's decision to leave interest rates at a four-decade low
throughout the period. While energy prices rose late in the period, core
inflation - excluding volatile food and energy prices - remained low relative
to historical averages.
DETRACTORS FROM PERFORMANCE
Over the six-month period ended February 29, 2004, the fund underperformed its
benchmark, the Russell 1000 Growth Index, and the average large-cap growth
fund as reported by Lipper Inc.
Relative to our benchmark, leisure was the fund's weakest area over the period.
Stock selection as well as an overweighting in the sector hurt results as the
sector underperformed the broad market. Going into the period, we believed our
positions in advertising-sensitive broadcasting stocks would benefit from
increased ad spending as the U.S. economy recovered. However, advertising
spending, particularly in local markets, stagnated somewhat during the period.
Fund positions such as media conglomerate Viacom, radio station operator Clear
Channel Communications, and radio and television programming provider Westwood
One detracted from relative performance. As of the end of the period, however,
all three stocks remained significant positions in the portfolio. We believed
they could benefit in 2004 from the confluence of a stronger economy, a U.S.
presidential election, and the summer Olympics.
- -----------------------------------------------
TOP 5 SECTOR WEIGHTINGS
AS OF 2/29/04
TECHNOLOGY 29.9%
- -----------------------------------------------
HEALTH CARE 18.7%
- -----------------------------------------------
FINANCIAL SERVICES 13.1%
- -----------------------------------------------
LEISURE 12.6%
- -----------------------------------------------
RETAILING 10.1%
- -----------------------------------------------
The portfolio is actively managed, and current
weightings may be different.
- -----------------------------------------------
Stock selection held back performance in the health care sector. Our biggest
relative detractor was pharmaceutical giant Pfizer because we held an
underweighted position in the company as its shares gained more than the broad
market.
In technology, stock selection and, to a lesser extent, an overweighting in
the sector hurt results as the sector underperformed the broad market. Our
positions in storage solution provider VERITAS Software, electronic commerce
firm InterActiveCorp, and semiconductor manufacturing equipment company
Novellus Systems fell in price over the period. On a relative basis, our
position in digital wireless communications firm QUALCOMM also detracted from
performance because we sold our holding during the period and missed much of
the stock's strong performance.
Individual stocks that meaningfully held back relative results included
moderate-priced apparel retailer Kohl's. We believe mediocre merchandising,
together with adverse weather in key markets, caused the firm to report weak
operating results. We viewed these issues as surmountable and maintained our
Kohl's holding over the period. Our holding in FedEx also weighed on
performance as the company reported weaker than expected shipping volumes.
CONTRIBUTORS TO PERFORMANCE
In the utilities and communications sector, stock selection as well as a
relative overweighting helped performance, as that sector was by far the
strongest-performing area in the Russell 1000 Growth Index for the period.
Consolidation possibilities, in our view, led to higher prices among cellular
service providers in general and our holding in AT&T Wireless in particular.
The company agreed during the period to merge with rival Cingular, and we sold
our AT&T position on strength heading into the final deal announcement. Our
holding in cellular phone company Sprint PCS also benefited from improving
subscriber growth and lower customer turnover.
An overweighting in the financial services sector also added to results as
that sector outperformed the broad market. Insurance and reinsurance firm Ace
Ltd. and insurance company American International Group, the largest
contributors to performance in the sector, benefited from a global trend
toward rising policy premiums.
While overall stock selection in technology detracted from relative results, a
number of technology stocks were among the fund's top performers for the
period. These included programmable logic designer/manufacturer Xilinx,
semiconductor maker Analog Devices, and online marketplace eBay. A relative
underweighting in semiconductor giant Intel also helped relative results as
the stock, which had soared for much of 2003, retreated in early 2004. Concern
about the stock's high valuation had led us to underweight Intel.
Not owning pharmaceutical giant Merck also helped relative returns as the
firm's stock lost ground over the period. We avoided Merck because we felt its
medium-term growth prospects would be limited by patent expirations on key
products as well as by a dearth of new drugs in the development pipeline.
Our position in Walt Disney Co. was also a significant contributor to
fund performance.
Respectfully,
/s/ Margaret Adams /s/ S. Irfan Ali
Margaret Adams S. Irfan Ali
Portfolio Manager Portfolio Manager
/s/ Stephen Pesek
Stephen Pesek
Portfolio Manager
Note to Shareholders: As of November, 2003, John E. Lathrop was no longer a
manager of the portfolio.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Investment Perspective for our current
view of the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/29/04
- ------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Performance results reflect the percentage change
in net asset value, including the reinvestment of any dividends and capital
gains distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A 9/20/1993 -- 30.98% -8.47% -3.45% 6.25%
- ------------------------------------------------------------------------------
B 12/29/1986 -- 30.06% -9.07% -4.08% 5.53%
- ------------------------------------------------------------------------------
C 6/1/2000 -- 30.08% -9.07% -4.05% 5.54%
- ------------------------------------------------------------------------------
I 1/2/1997 -- 31.32% -8.18% -3.12% 6.29%
- ------------------------------------------------------------------------------
Comparative benchmarks
- --------------------
Average annual
- --------------------
- ------------------------------------------------------------------------------
Average large-cap
growth fund+ 9.92% 33.18% -6.49% -3.82% 7.60%
- ------------------------------------------------------------------------------
Russell 1000 Growth
Index# 12.17% 37.18% -4.85% -4.80% 9.45%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
- --------------------
Average annual
with sales charge
- --------------------
Share
class 6-mo 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A -- 23.45% -10.26% -4.59% 5.62%
- ------------------------------------------------------------------------------
B -- 26.06% -9.99% -4.37% 5.53%
- ------------------------------------------------------------------------------
C -- 29.08% -9.07% -4.05% 5.54%
- ------------------------------------------------------------------------------
I class shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 7.65% 30.98% -23.31% -16.10% 83.36%
- ------------------------------------------------------------------------------
B 7.29% 30.06% -24.81% -18.82% 71.25%
- ------------------------------------------------------------------------------
C 7.24% 30.08% -24.81% -18.68% 71.53%
- ------------------------------------------------------------------------------
I 7.83% 31.32% -22.59% -14.67% 83.96%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized .
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
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
A portion of the returns shown is attributable to the receipt of a non-recurring
payment in settlement of a class action lawsuit. See Notes to Financial
Statements.
Class A results, including sales charge, reflect the deduction of the maximum
5.75% sales charge. Class B results, including sales charge, reflect 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 reflect
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.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
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 (unaudited) - 2/29/04
- -----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 99.6%
- -----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------
U.S. Stocks - 99.1%
- -----------------------------------------------------------------------------------------------
Basic Materials - 0.3%
- -----------------------------------------------------------------------------------------------
3M Co. 10,000 $780,200
- -----------------------------------------------------------------------------------------------
Consumer Staples - 3.5%
- -----------------------------------------------------------------------------------------------
Avon Products, Inc. 32,000 $2,259,200
- -----------------------------------------------------------------------------------------------
Colgate-Palmolive Co. 35,700 1,979,565
- -----------------------------------------------------------------------------------------------
PepsiCo, Inc.^ 74,500 3,866,550
- -----------------------------------------------------------------------------------------------
$8,105,315
- -----------------------------------------------------------------------------------------------
Financial Services - 12.6%
- -----------------------------------------------------------------------------------------------
American Express Co. 98,700 $5,272,554
- -----------------------------------------------------------------------------------------------
American International Group, Inc. 80,400 5,949,600
- -----------------------------------------------------------------------------------------------
Bank of New York Co., Inc. 36,300 1,197,900
- -----------------------------------------------------------------------------------------------
Citigroup, Inc. 79,500 3,995,670
- -----------------------------------------------------------------------------------------------
Fannie Mae 22,800 1,707,720
- -----------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 18,500 1,958,595
- -----------------------------------------------------------------------------------------------
MBNA Corp. 86,200 2,355,846
- -----------------------------------------------------------------------------------------------
Mellon Financial Corp. 41,800 1,353,484
- -----------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 44,700 2,736,087
- -----------------------------------------------------------------------------------------------
Northern Trust Corp. 31,100 1,544,115
- -----------------------------------------------------------------------------------------------
SLM Corp.^ 22,500 942,525
- -----------------------------------------------------------------------------------------------
$29,014,096
- -----------------------------------------------------------------------------------------------
Healthcare - 18.6%
- -----------------------------------------------------------------------------------------------
Abbott Laboratories 73,900 $3,162,920
- -----------------------------------------------------------------------------------------------
Amgen, Inc.* 56,400 3,583,092
- -----------------------------------------------------------------------------------------------
Cardinal Health, Inc.^ 30,100 1,963,423
- -----------------------------------------------------------------------------------------------
Caremark Rx, Inc.^* 54,400 1,754,944
- -----------------------------------------------------------------------------------------------
Eli Lilly & Co. 13,600 1,005,584
- -----------------------------------------------------------------------------------------------
Genentech, Inc.^* 7,300 787,597
- -----------------------------------------------------------------------------------------------
Genzyme Corp.* 77,100 3,915,138
- -----------------------------------------------------------------------------------------------
Gilead Sciences, Inc.* 77,400 4,195,854
- -----------------------------------------------------------------------------------------------
Guidant Corp. 27,200 1,853,408
- -----------------------------------------------------------------------------------------------
Johnson & Johnson 140,900 7,595,919
- -----------------------------------------------------------------------------------------------
Medtronic, Inc. 51,600 2,420,040
- -----------------------------------------------------------------------------------------------
Pfizer, Inc. 124,100 4,548,265
- -----------------------------------------------------------------------------------------------
Thermo Electron Corp.^* 60,600 1,701,042
- -----------------------------------------------------------------------------------------------
Waters Corp.^* 43,800 1,617,972
- -----------------------------------------------------------------------------------------------
Wyeth 69,500 2,745,250
- -----------------------------------------------------------------------------------------------
$42,850,448
- -----------------------------------------------------------------------------------------------
Industrial Goods & Services - 6.1%
- -----------------------------------------------------------------------------------------------
Danaher Corp.^ 31,600 $2,832,308
- -----------------------------------------------------------------------------------------------
Emerson Electric Co. 31,600 1,974,368
- -----------------------------------------------------------------------------------------------
General Electric Co. 232,000 7,544,640
- -----------------------------------------------------------------------------------------------
Illinois Tool Works, Inc. 19,700 1,566,544
- -----------------------------------------------------------------------------------------------
$13,917,860
- -----------------------------------------------------------------------------------------------
Leisure - 12.6%
- -----------------------------------------------------------------------------------------------
Carnival Corp. 61,400 $2,724,318
- -----------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.^ 65,600 2,823,424
- -----------------------------------------------------------------------------------------------
Comcast Holdings Corp., "A"^* 114,700 3,445,588
- -----------------------------------------------------------------------------------------------
Cox Communications, Inc.^* 34,300 1,111,320
- -----------------------------------------------------------------------------------------------
EchoStar Communications Corp., "A"* 88,600 3,200,232
- -----------------------------------------------------------------------------------------------
Fox Entertainment Group, Inc.^* 77,200 2,240,344
- -----------------------------------------------------------------------------------------------
Lamar Advertising Co.^* 38,300 1,520,510
- -----------------------------------------------------------------------------------------------
New York Times Co.^ 31,800 1,451,352
- -----------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 32,000 1,548,480
- -----------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 30,400 1,185,904
- -----------------------------------------------------------------------------------------------
Time Warner, Inc.^* 75,100 1,295,475
- -----------------------------------------------------------------------------------------------
Viacom, Inc.^ 86,100 3,311,406
- -----------------------------------------------------------------------------------------------
Walt Disney Co.^ 34,400 912,632
- -----------------------------------------------------------------------------------------------
Westwood One, Inc.* 67,700 2,091,930
- -----------------------------------------------------------------------------------------------
$28,862,915
- -----------------------------------------------------------------------------------------------
Miscellaneous - 2.2%
- -----------------------------------------------------------------------------------------------
Apollo Group, Inc.^* 15,600 $1,187,940
- -----------------------------------------------------------------------------------------------
BISYS Group, Inc.^* 54,800 967,220
- -----------------------------------------------------------------------------------------------
Career Education Corp.* 24,000 1,199,760
- -----------------------------------------------------------------------------------------------
DST Systems, Inc.^* 18,800 841,488
- -----------------------------------------------------------------------------------------------
Fiserv, Inc.^* 23,200 895,752
- -----------------------------------------------------------------------------------------------
$5,092,160
- -----------------------------------------------------------------------------------------------
Retail - 10.0%
- -----------------------------------------------------------------------------------------------
Coach, Inc.^* 31,400 $1,244,382
- -----------------------------------------------------------------------------------------------
CVS Corp. 24,400 915,000
- -----------------------------------------------------------------------------------------------
Kohl's Corp.* 80,900 4,166,350
- -----------------------------------------------------------------------------------------------
Nike, Inc., "B"^ 27,500 2,014,375
- -----------------------------------------------------------------------------------------------
Pacific Sunwear of California, Inc.* 28,000 671,160
- -----------------------------------------------------------------------------------------------
Staples, Inc.* 56,700 1,486,674
- -----------------------------------------------------------------------------------------------
Target Corp. 116,900 5,138,924
- -----------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 82,600 4,919,656
- -----------------------------------------------------------------------------------------------
Walgreen Co. 69,500 2,478,370
- -----------------------------------------------------------------------------------------------
$23,034,891
- -----------------------------------------------------------------------------------------------
Technology - 29.8%
- -----------------------------------------------------------------------------------------------
ADTRAN, Inc. 52,000 $1,693,120
- -----------------------------------------------------------------------------------------------
Analog Devices, Inc.^ 87,900 4,386,210
- -----------------------------------------------------------------------------------------------
BEA Systems, Inc.^* 83,400 1,150,920
- -----------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 384,700 8,886,570
- -----------------------------------------------------------------------------------------------
Corning, Inc.* 254,000 3,187,700
- -----------------------------------------------------------------------------------------------
Dell, Inc.* 141,900 4,633,035
- -----------------------------------------------------------------------------------------------
eBay, Inc.* 33,700 2,320,582
- -----------------------------------------------------------------------------------------------
Intel Corp. 108,600 3,174,378
- -----------------------------------------------------------------------------------------------
InterActiveCorp.^* 77,700 2,530,689
- -----------------------------------------------------------------------------------------------
International Business Machines Corp. 51,700 4,989,050
- -----------------------------------------------------------------------------------------------
Linear Technology Corp. 45,000 1,799,550
- -----------------------------------------------------------------------------------------------
Maxim Integrated Products, Inc.^ 35,100 1,751,841
- -----------------------------------------------------------------------------------------------
Mercury Interactive Corp.^* 47,700 2,315,358
- -----------------------------------------------------------------------------------------------
Microchip Technology, Inc.^ 63,100 1,798,350
- -----------------------------------------------------------------------------------------------
Microsoft Corp. 358,200 9,492,300
- -----------------------------------------------------------------------------------------------
Network Associates, Inc.^* 68,000 1,192,720
- -----------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 42,300 1,359,945
- -----------------------------------------------------------------------------------------------
Oracle Corp.* 201,700 2,597,896
- -----------------------------------------------------------------------------------------------
Texas Instruments, Inc. 112,100 3,435,865
- -----------------------------------------------------------------------------------------------
VERITAS Software Corp.* 114,100 3,470,922
- -----------------------------------------------------------------------------------------------
Xilinx, Inc.^* 57,200 2,404,688
- -----------------------------------------------------------------------------------------------
$68,571,689
- -----------------------------------------------------------------------------------------------
Transportation - 1.9%
- -----------------------------------------------------------------------------------------------
FedEx Corp. 37,500 $2,575,500
- -----------------------------------------------------------------------------------------------
Southwest Airlines Co.^ 130,600 1,803,586
- -----------------------------------------------------------------------------------------------
$4,379,086
- -----------------------------------------------------------------------------------------------
Utilities & Communications - 1.5%
- -----------------------------------------------------------------------------------------------
Andrew Corp.^* 98,600 $1,757,052
- -----------------------------------------------------------------------------------------------
Sprint Corp. (PCS Group)* 183,900 1,655,100
- -----------------------------------------------------------------------------------------------
$3,412,152
- -----------------------------------------------------------------------------------------------
Total U.S. Stocks $228,020,812
- -----------------------------------------------------------------------------------------------
Foreign Stocks - 0.5%
- -----------------------------------------------------------------------------------------------
Bermuda - 0.5%
- -----------------------------------------------------------------------------------------------
Ace Ltd. (Financial Services) 24,800 $1,115,008
- -----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $193,879,024) $229,135,820
- -----------------------------------------------------------------------------------------------
Short-Term Obligations - 0.7%
- -----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------
General Electric Capital Corp., due 3/01/04,
at Amortized Cost $1,670 $1,670,000
- -----------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 17.3%
- -----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Identified Cost 39,735,811 $39,735,811
- -----------------------------------------------------------------------------------------------
Repurchase Agreements
- -----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------
Merrill Lynch & Co., dated 2/27/04, due 3/1/04, total to
be received $9,001 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account),
at Cost $9 $9,000
- -----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $235,293,835) $270,550,631
- -----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (17.6)% (40,545,512)
- -----------------------------------------------------------------------------------------------
Net Assets - 100.0% $230,005,119
- -----------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
See notes to financial statements.
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 2/29/04
ASSETS
Investments, at value, including $38,831,072 of securities
on loan (identified cost, $235,293,835) $270,550,631
- --------------------------------------------------------------------------------------------------
Cash 887
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 2,976,948
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 20,492
- --------------------------------------------------------------------------------------------------
Interest and dividends receivable 213,138
- --------------------------------------------------------------------------------------------------
Other assets 5,163
- --------------------------------------------------------------------------------------------------
Total assets $273,767,259
- --------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $3,473,137
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 394,357
- --------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 39,735,811
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 14,156
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 3,373
- --------------------------------------------------------------------------------------------------
Distribution and service fee 8,999
- --------------------------------------------------------------------------------------------------
Administrative fee 325
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 131,982
- --------------------------------------------------------------------------------------------------
Total liabilities $43,762,140
- --------------------------------------------------------------------------------------------------
Net assets $230,005,119
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $492,805,255
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 35,256,796
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (297,220,844)
- --------------------------------------------------------------------------------------------------
Accumulated net investment loss (836,088)
- --------------------------------------------------------------------------------------------------
Net assets $230,005,119
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 28,238,193
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $181,238,835
- --------------------------------------------------------------------------------------------------
Shares outstanding 22,214,957
- --------------------------------------------------------------------------------------------------
Net asset value per share $8.16
- --------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$8.16) $8.66
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $45,038,972
- --------------------------------------------------------------------------------------------------
Shares outstanding 5,566,969
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.09
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $1,326,422
- --------------------------------------------------------------------------------------------------
Shares outstanding 165,737
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.00
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $2,400,890
- --------------------------------------------------------------------------------------------------
Shares outstanding 290,530
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $8.26
- --------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent
deferred sales charge may be imposed on redemptions of Class A, Class B and Class C shares.
See notes to financial statements.
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- --------------------------------------------------------------------------------------------------
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 SIX MONTHS ENDED 2/29/04
NET INVESTMENT LOSS
Income
- --------------------------------------------------------------------------------------------------
Dividends $1,002,152
- --------------------------------------------------------------------------------------------------
Interest 42,351
- --------------------------------------------------------------------------------------------------
Total investment income $1,044,503
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $855,947
- --------------------------------------------------------------------------------------------------
Trustees' compensation 12,100
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 228,807
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 314,112
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 225,829
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 6,350
- --------------------------------------------------------------------------------------------------
Administrative fee 6,689
- --------------------------------------------------------------------------------------------------
Custodian fee 33,295
- --------------------------------------------------------------------------------------------------
Printing 40,478
- --------------------------------------------------------------------------------------------------
Postage 23,490
- --------------------------------------------------------------------------------------------------
Auditing fees 18,458
- --------------------------------------------------------------------------------------------------
Legal fees 1,171
- --------------------------------------------------------------------------------------------------
Miscellaneous 9,831
- --------------------------------------------------------------------------------------------------
Total expenses $1,776,557
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (593)
- --------------------------------------------------------------------------------------------------
Net expenses $1,775,964
- --------------------------------------------------------------------------------------------------
Net investment loss $(731,461)
- --------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $13,937,290
- --------------------------------------------------------------------------------------------------
Foreign currency transactions 112
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $13,937,402
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation on investments $3,776,157
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $17,713,559
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $16,982,098
- --------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/29/04 8/31/03
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $(731,461) $(1,541,045)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 13,937,402 (3,099,503)
- --------------------------------------------------------------------------------------------------
Net unrealized gain on investments 3,776,157 30,289,025
- -------------------------------------------------------- ------------- ------------
Increase in net assets from operations $16,982,098 $25,648,477
- -------------------------------------------------------- ------------- ------------
Net decrease in net assets from fund share transactions $(16,645,146) $(33,081,638)
- -------------------------------------------------------- ------------- ------------
Total increase (decrease) in net assets $336,952 $(7,433,161)
- ------------------------------------------------------------------------ ------------
NET ASSETS
At beginning of period $229,668,167 $237,101,328
- --------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $836,088 and $104,627, respectively) $230,005,119 $229,668,167
- --------------------------------------------------------------------------------------------------
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 semiannual period
and 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) held for the entire period.
SIX MONTHS YEAR ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS A 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $7.58 $6.70 $8.60 $21.45 $14.95 $11.06
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss $(0.02) $(0.04) $(0.07) $(0.06) $(0.11) $(0.08)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.60 0.92 (1.83) (9.44) 8.73 5.72
- --------------------------------- -------- ------ ------ ------ ------ ------
Total from investment
operations $0.58 $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 $8.16 $7.58 $6.70 $8.60 $21.45 $14.95
- --------------------------------- -------- ------ ------ ------ ------ ------
Total return (%)(+) 7.65++ 13.13^^ (22.09) (50.32) 60.26 54.92
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS A (CONTINUED) 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.42+ 1.51 1.46 1.36 1.32 1.36
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.51)+ (0.57) (0.92) (0.43) (0.56) (0.57)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 44 72 282 319 495 334
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $181,239 $180,237 $183,797 $276,026 $600,531 $326,805
- ------------------------------------------------------------------------------------------------------------------------------
+ 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 A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
^^ The fund's total return calculation includes proceeds received on March 26, 2003 from a non-recurring litigation settlement
recorded as a realized gain on investment transactions. The proceeds resulted in an increase in the net asset value of $0.02
per share based on shares outstanding on the day the proceeds were received. 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
SIX MONTHS YEAR ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS B 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $7.54 $6.71 $8.67 $21.55 $15.04 $11.08
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss $(0.05) $(0.08) $(0.13) $(0.14) $(0.24) $(0.17)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.60 0.91 (1.83) (9.52) 8.78 5.75
- --------------------------------- ---------- ------ ------ ------ ------ ------
Total from investment operations $0.55 $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 $8.09 $7.54 $6.71 $8.67 $21.55 $15.04
- --------------------------------- ---------- ------ ------ ------ ------ ------
Total return (%) 7.29++ 12.37^^ (22.61) (50.64) 59.15 53.89
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.07+ 2.16 2.11 2.01 1.97 2.01
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.15)+ (1.22) (1.57) (1.08) (1.20) (1.22)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 44 72 282 319 495 334
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $45,039 $45,982 $49,995 $87,876 $243,420 $127,024
- ------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^^ The fund's total return calculation includes proceeds received on March 26, 2003 from a non-recurring litigation settlement
recorded as a realized gain on investment transactions. The proceeds resulted in an increase in the net asset value of $0.02
per share based on shares outstanding on the day the proceeds were received. 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
SIX MONTHS YEAR ENDED 8/31 PERIOD
ENDED ------------------------------------------- ENDED
CLASS C 2/29/04 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning of period $7.46 $6.65 $8.57 $21.57 $19.62
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.04) $(0.08) $(0.13) $(0.12) $(0.08)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 0.58 0.89 (1.79) (9.47) 2.03
- ------------------------------------------------ ------- ------ ------ ------ ------
Total from investment operations $0.54 $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 $8.00 $7.46 $6.65 $8.57 $21.57
- ------------------------------------------------ ------- ------ ------ ------ ------
Total return (%) 7.24++ 12.18^^ (22.40) (50.62) 59.30++
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 2.07+ 2.16 2.11 2.01 1.97+
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.15)+ (1.22) (1.57) (1.08) (1.53)+
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 44 72 282 319 495
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $1,326 $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.
^^ The fund's total return calculation includes proceeds received on March 26, 2003 from a non-recurring litigation settlement
recorded as a realized gain on investment transactions. The proceeds resulted in an increase in the net asset value of $0.02
per share based on shares outstanding on the day the proceeds were received. 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
SIX MONTHS YEAR ENDED 8/31
ENDED ----------------------------------------------------------------------
CLASS I 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $7.66 $6.75 $8.64 $21.54 $14.99 $11.10
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss $(0.01) $(0.01) $(0.05) $(0.01) $(0.04) $(0.03)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investments and foreign currency 0.61 0.92 (1.84) (9.47) 8.76 5.72
- -------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.60 $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 $8.26 $7.66 $6.75 $8.64 $21.54 $14.99
- -------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 7.83++ 13.48^^ (21.88) (50.14) 60.76 55.45
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.07+ 1.16 1.11 1.01 0.97 1.01
- --------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.16)+ (0.22) (0.57) (0.08) (0.21) (0.21)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 44 72 282 319 495 334
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $2,401 $2,250 $2,070 $2,739 $6,418 $2,829
- --------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^^ The fund's total return calculation includes proceeds received on March 26, 2003 from a non-recurring litigation settlement
recorded as a realized gain on investment transactions. The proceeds resulted in an increase in the net asset value of $0.02
per share based on shares outstanding on the day the proceeds were received. 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 (unaudited)
- ------------------------------------------------------------------------------
(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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market prices where current market
prices are readily available, or the fund may fair value portfolio securities
under the direction of the Board of Trustees when a determination is made that
current market prices are not readily available. Equity securities in the
fund's portfolio for which market quotations are available are valued at the
last sale or official closing price as reported by an independent pricing
service 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. Equity securities traded over the counter are valued at the
last sales price traded each day as reported by an independent pricing
service, or to the extent there are no sales reported, such securities are
valued on the basis of quotations obtained from brokers and dealers. Equity
securities for which it is determined that current market prices are not
readily available will be fair valued under the direction of the Board of
Trustees. The fund may also fair value foreign equity securities in cases
where closing market prices are not readily available or are deemed not
reflective of readily available market prices. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the fund calculates its net
asset value (generally, the close of the NYSE) that may impact the value of
securities traded in these foreign markets. In these cases, the fund may
utilize information from an external vendor or other sources to adjust closing
market prices of foreign equity securities to reflect what it believes to be
the fair value of the securities as of the fund's valuation time. Because the
frequency of significant events is not predictable, fair valuation of foreign
equity securities may occur on a frequent basis. Short-term obligations with a
remaining maturity in excess of 60 days will be valued upon dealer-supplied
valuations. All other short-term obligations in the fund's portfolio are
valued at amortized cost, which constitutes market value as determined by the
Board of Trustees. Money market mutual funds are valued at net asset value.
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.
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 - 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.
On loans collateralized by cash, the cash collateral is invested in a money
market fund and 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.
The fund was a participant in a class-action lawsuit against Cendant
Corporation. On March 26, 2003 the fund received a cash settlement in the
amount of $743,793, recorded as a realized gain on investment transactions.
The proceeds from the non-recurring litigation settlement resulted in an
increase in net asset value of $0.02 per share based on the shares outstanding
on the day the proceeds were received. 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 lower by 0.34%, 0.35%, 0.35%, and 0.35%
for class A, B, C and I, 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 for the six months ended February 29, 2004 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 and real estate investment trusts.
The fund paid no distributions for the years ended August 31, 2003 and August
31, 2002.
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)
---------------------------------------------------------
Post-October capital loss deferral (2,744,828)
---------------------------------------------------------
Unrealized appreciation 31,140,549
---------------------------------------------------------
Other temporary differences (104,627)
---------------------------------------------------------
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, 2009 $(18,916,162)
---------------------------------------------------------
August 31, 2010 (209,919,760)
---------------------------------------------------------
August 31, 2011 (79,237,406)
---------------------------------------------------------
Total $(308,073,328)
---------------------------------------------------------
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 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%
Management fees incurred for the six months ended February 29, 2004 were 0.75%
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). The fund
has an unfunded, defined benefit plan for retired Trustees and an unfunded
retirement benefit deferral plan for current Trustees. Included in Trustees'
compensation is a net decrease of $14,052 as a result of the change in the
fund's pension liability for current Trustees and a pension expense of $2,387
for retired Trustees for the six months ended February 29, 2004.
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
up to the following annual percentage rates 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
$4,976 for six month ended February 29, 2004, 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 six months ended February 29, 2004, amounted to:
CLASS A CLASS B CLASS C
Service Fee Retained by MFD $8,043 $858 $4
- -------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February
29, 2004, were as follows:
CLASS A CLASS B CLASS C
Effective Annual Percentage Rates 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 six months ended February 29, 2004,
were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $424 $37,533 $101
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, 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%, which amounted to
$125,539 for the six months ended February 29, 2004. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $26,899 for the six months ended February 29, 2004, as well as
other expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$99,896,626 and $114,890,760, 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 $235,633,925
- --------------------------------------------------------------------------------
Gross unrealized appreciation $36,418,350
- --------------------------------------------------------------------------------
Gross unrealized depreciation (1,501,644)
- --------------------------------------------------------------------------------
Net unrealized appreciation $34,916,706
- --------------------------------------------------------------------------------
(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:
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 727,765 $5,742,252 1,956,338 $12,960,002
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (2,305,961) (18,209,458) (5,584,582) (36,876,148)
- ---------------------------------------------------------------------------------------------------------
Net decrease (1,578,196) $(12,467,206) (3,628,244) $(23,916,146)
- ---------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 268,543 $2,103,075 818,965 $5,502,570
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (803,028) (6,288,912) (2,166,390) (14,423,562)
- ---------------------------------------------------------------------------------------------------------
Net decrease (534,485) $(4,185,837) (1,347,425) $(8,920,992)
- ---------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 30,625 $236,295 160,262 $1,068,677
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (25,736) (200,448) (185,934) (1,225,803)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) 4,889 $35,847 (25,672) $(157,126)
- ---------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 9,588 $75,294 26,922 $183,217
- ---------------------------------------------------------------------------------------------------------
Shares reacquired (12,766) (103,244) (39,742) (270,591)
- ---------------------------------------------------------------------------------------------------------
Net decrease (3,178) $(27,950) (12,820) $(87,374)
- ---------------------------------------------------------------------------------------------------------
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the six months ended February 29, 2004, was $842.
The fund had no borrowings during the period.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding regarding
disclosure of brokerage allocation practices in connection with fund sales.
Under the terms of the settlement, in which MFS neither admitted nor denied
any wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement and $50
million in penalty to certain MFS funds, pursuant to a plan to be approved by
an independent distribution consultant. The agreement with the SEC is
reflected in an order of the SEC. The settlement order states that MFS failed
to adequately disclose to the Boards of Trustees and to shareholders of the
MFS funds the specifics of its preferred arrangements with certain brokerage
firms selling MFS fund shares. The settlement order states that MFS had in
place policies designed to obtain best execution of all fund trades.
As part of the settlement, MFS also agreed to retain an independent compliance
consultant to review the completeness of its disclosure to fund trustees and
to fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial advisers who support the sale of fund
shares. The brokerage allocation practices which were the subject of this
proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the Securities and
Exchange Commission ("SEC"), the New York Attorney General ("NYAG") and the
Bureau of Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in certain
MFS fund prospectuses regarding market timing and related matters (the "February
Settlements"). These regulators alleged that prospectus language for certain MFS
funds was false and misleading because, although the prospectuses for those
funds in the regulators' view indicated that the funds prohibited market timing,
MFS did not limit trading activity in 11 domestic large cap stock, high grade
bond and money market funds. MFS' former Chief Executive Officer, John W.
Ballen, and former President, Kevin R. Parke, have also reached agreement with
the SEC (Messrs. Ballen and Parke resigned their director and officer positions
with MFS on February 13, 2004). Under the terms of the February Settlements, MFS
and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds offered
to retail investors ("Retail Funds"), which has been funded by MFS and of which
$50 million is characterized as a penalty. This pool will be distributed in
accordance with a methodology developed by an independent distribution
consultant in consultation with MFS and the Boards of Trustees of the Retail
Funds, and acceptable to the SEC. MFS has further agreed with the NYAG to reduce
its management fees in the aggregate amount of approximately $25 million
annually over the next five years, and not to increase certain management fees
during this period. MFS has also paid an administrative fine to NH in the amount
of $1 million, which will be used for investor education purposes (NH will
retain $250,000 and $750,000 will be contributed to the North American
Securities Administrators Association's Investor Protection Trust). In addition,
MFS and the Retail Funds will adopt certain governance changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as
trustees of all MFS funds, and Mr. Ballen resigned his position as President
of all MFS funds, effective February 6, 2004. Messrs. Ballen and Parke will
not be returning to MFS or the MFS funds after their suspensions.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The
lawsuits variously have been commenced as class actions or individual actions
on behalf of investors who purchased, held or redeemed shares of the funds
during specified periods, as class actions on behalf of participants in
certain retirement plan accounts, or as derivative actions on behalf of the
MFS funds. The lawsuits generally allege that some or all of the defendants
(i) permitted or acquiesced in market timing and/or late trading in some of
the MFS funds, inadequately disclosed MFS' internal policies concerning market
timing and such matters, and received excessive compensation as fiduciaries to
the MFS fund, or (ii) permitted or acquiesced in the improper use of fund
assets by MFS to support the distribution of fund shares and inadequately
disclosed MFS' use of fund assets in this manner. The actions assert that some
or all of the defendants violated the federal securities laws, including the
Securities Act of 1933 and the Securities Exchange Act of 1934, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, the Employee
Retirement Income Security Act of 1974, as well as fiduciary duties and other
violations of common law. The lawsuits seek unspecified compensatory damages.
Insofar as any of the actions is appropriately brought derivatively on behalf
of any of the MFS funds, any recovery will inure to the benefit of the funds.
The defendants are reviewing the allegations of the multiple complaints and
will respond appropriately. Additional lawsuits based on similar allegations
may be filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS
has established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the
funds, and will pay $50 million to compensate certain MFS funds based upon the
amount of brokerage commissions allocated in recognition of fund sales. It is
not clear whether these amounts will be sufficient to compensate shareholders
for all of the damage they allegedly sustained, whether certain shareholders
or putative class members may have additional claims to compensation, or
whether the damages that may be awarded in any of the actions will exceed
these amounts. In the event the MFS funds incur any losses, costs or expenses
in connection with such lawsuits, the Boards of Trustees of the affected funds
may pursue claims on behalf of such funds against any party that may have
liability to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- --------------------------------------------------------------------------------------------------------------
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
JOHN W. BALLEN(2)(5) (born 09/12/59) DAVID H. GUNNING(4) (born 05/30/42)
Trustee and President Trustee
Massachusetts Financial Services Company, Chief Cleveland-Cliffs Inc. (mining products and service
Executive Officer and Director (until February provider), Vice Chairman/Director (since April
2004) 2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
ROBERT J. MANNING(2)(7) (born 10/20/63) Electric Holdings, Inc. (welding equipment
Trustee manufacturer), Director; Southwest Gas Corporation
Massachusetts Financial Services Company, Chief (natural gas distribution company), Director
Executive Officer, President, Chief Investment
Officer and Director WILLIAM R. GUTOW (born 09/27/41)
Trustee
KEVIN R. PARKE(2)(5) (born 12/14/59) Private investor and real estate consultant;
Trustee Capitol Entertainment Management Company (video
Massachusetts Financial Services Company, franchise), Vice Chairman
President, Chief Investment Officer and Director
(until February 2004) AMY B. LANE(4) (born 02/08/53)
Trustee
ROBERT C. POZEN(2)(7) (born 08/08/46) Retired; Merrill Lynch & Co., Inc., Managing
Trustee Director, Investment Banking Group (1997 to
Massachusetts Financial Services Company, Chairman February 2001); Borders Group, Inc. (book and
(since February 2004); Harvard Law School music retailer), Director; Federal Realty
(education), John Olin Visiting Professor (since Investment Trust (real estate investment trust),
July 2002); Secretary of Economic Affairs, The Trustee
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice ABBY M. O'NEILL(3) (born 04/27/28)
Chairman (June 2000 to December 2001); Fidelity Trustee
Management & Research Company (investment Private investor; Rockefeller Financial Services,
adviser), President (March 1997 to July 2001); The Inc. (investment advisers), Chairman and Chief
Bank of New York (financial services), Director; Executive Officer
Bell Canada Enterprises (telecommunications),
Director; Telesat (satellite communications), LAWRENCE T. PERERA (born 06/23/35)
Director Trustee
Hemenway & Barnes (attorneys), Partner
JEFFREY L. SHAMES(2)(6) (born 06/02/55)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Chairman Trustee
(until February 2004) Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
J. ATWOOD IVES (born 05/01/36) CBL & Associates Properties, Inc. (real estate
Co-Chair investment trust), Director
Private investor; KeySpan Corporation (energy
related services), Director; Eastern Enterprises J. DALE SHERRATT (born 09/23/38)
(diversified services company), Chairman, Trustee Trustee
and Chief Executive Officer (until November 2000) Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WARD SMITH (born 09/13/30) (investor in health care companies), Managing
Co-Chair General Partner (since 1993); Cambridge
Private investor Nutraceuticals (professional nutritional
products), Chief Executive Officer (until May
LAWRENCE H. COHN, M.D. (born 03/11/37) 2001)
Trustee
Brigham and Women's Hospital, Chief of Cardiac ELAINE R. SMITH (born 04/25/46)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Independent health care industry consultant
(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.
(3) Retired December 31, 2003.
(4) Appointed Trustee on January 27, 2004.
(5) Resigned February 6, 2004.
(6) Resigned on February 13, 2004.
(7) Appointed Trustee on February 24, 2004.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN(1) (born 09/12/59) RICHARD M. HISEY (born 08/29/58)
Trustee and President Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Senior
Executive Officer and Director (until February Vice President (since July 2002); The Bank of New
2004) York, Senior Vice President (September 2000 to
July 2002); Lexington Global Asset Managers, Inc.,
JAMES R. BORDEWICK, JR. (born 03/06/59) Executive Vice President and Chief Financial
Assistant Secretary and Assistant Clerk Officer (prior to September 2000); Lexington
Massachusetts Financial Services Company, Senior Funds, Treasurer (prior to September 2000)
Vice President and Associate General Counsel
ROBERT J. MANNING(2) (born 10/20/63)
STEPHEN E. CAVAN (born 11/06/53) President
Secretary and Clerk Massachusetts Financial Services Company, Chief
Massachusetts Financial Services Company, Senior Executive Officer, President, Chief Investment
Vice President, General Counsel and Secretary Officer and Director
STEPHANIE A. DESISTO (born 10/01/53) ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers President
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus JAMES O. YOST (born 06/12/60)
Investment Management, Senior Vice President Assistant Treasurer
(prior to November 2002) Massachusetts Financial Services Company, Senior
Vice President
ROBERT R. FLAHERTY (born 09/18/63)
Assistant Treasurer
Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
(1) Resigned on February 6, 2004.
(2) Appointed President on February 6, 2004.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five
years thereafter to elect Trustees. Each Trustee and officer will hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Mr. Shames has served as a Trustee of the Trust continually since originally appointed until February 13,
2004. Messrs. Cohn, Sherratt and Smith, have served in their capacity as Trustee of the Trust continuously
since originally elected or appointed. Messrs. 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. Ballen was elected by
shareholders and served as a Trustee of the Trust from January 1, 2002 until February 6, 2004, and Mr. Parke
served as a Trustee of the Trust from January 1, 2002, until February 6, 2004. Ms. O'Neill retired on December
31, 2003. Mr. Gunning and Ms. Lane have served as Trustees of the Trust since January 27, 2004, and Messrs.
Manning and Pozen have served as Trustees since February 24, 2004.
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 109 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 Bank
MFS Fund Distributors, Inc. One Chase Manhattan Plaza
500 Boylston Street, Boston, MA New York, NY 10081
02116-3741
PORTFOLIO MANAGERS
Margaret W. Adams
S. Irfan Ali
Stephen Pesek
- ------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. The prospectus contains complete information on the fund's
investment objective(s), the risks associated with an investment in the fund,
the fees, charges and expenses involved, as well as other information about
the fund. The prospectus should be read carefully before investing.
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 and procedures 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 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
MMS-SEM-4/04 64M
MFS(R) Mutual Funds
SEMIANNUAL REPORT 2/29/04
MFS(R) TECHNOLOGY 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) TECHNOLOGY FUND
The fund seeks capital appreciation.
- -------------------------------------------------------------------------------
To view MFS' statement concerning regulatory issues affecting the mutual fund
industry and the firm, please visit mfs.com.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- ----------------------------------------------------
FINANCIAL STATEMENTS 16
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 31
- ----------------------------------------------------
TRUSTEES AND OFFICERS 42
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES
OF INVESTORS 44
- ----------------------------------------------------
CONTACT INFORMATION 45
- ----------------------------------------------------
ASSET ALLOCATION 46
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
As the firm's new Chief Executive Officer, I want to thank you for your
continued trust in MFS and tell you about the series of actions we have taken
since our recent settlements with the regulators. These actions are designed
to enhance the governance structure of the MFS funds, tighten our business
practices, and strengthen the management team at MFS.
In early February, Robert Pozen joined MFS as non-executive Chairman. A
seasoned veteran of the mutual fund industry, Bob has held prior positions as
President of Fidelity Management & Research Company, as Associate General
Counsel of the Securities and Exchange Commission, and as a visiting professor
at Harvard Law School.
In an effort to develop and implement policies that we believe will set a new
standard in regulatory compliance, MFS has hired two new senior executives.
Jeffrey Carp is joining us as General Counsel with responsibility for all of
our legal affairs. Previously he was a senior partner with the law firm of
Hale and Dorr LLP. Also joining MFS in the new position of Executive Vice
President of Regulatory Affairs is Maria Dwyer, who returned to the firm after
serving as a senior executive at Fidelity. At MFS, Maria is in charge of
compliance, internal audit, and fund treasury.
In the area of governance, we have taken steps to enhance the independence of
our funds' boards of trustees to better protect the interests of shareholders.
We have independent board chairs and at least 75% of the trustees are
independent. The trustees will appoint not only their own counsel but also an
independent compliance officer. This officer will assist the boards and their
committees in monitoring the MFS funds' compliance with federal and state
regulations.
In February, MFS reached agreements with federal and state regulators to
settle their administrative proceedings against the firm and two senior
executives in connection with market timing and related issues. Under the
terms of the settlements, we agreed to pay $225 million to compensate affected
retail fund shareholders. The $225 million will be distributed in accordance
with a distribution plan developed by an independent consultant.
We have further agreed with state regulators to reduce management fees on
certain funds we advise by approximately $25 million annually over the next
five years and to pay an administrative fine of $1 million, which will be used
for the purpose of investor education. We have introduced a set of policies
designed to protect the MFS funds and MFS fund shareholders from market timing
abuses. By July, all MFS retail funds, except money market funds, will have a
2% redemption fee on short-term trades. Our global, international, high-yield,
mid- and small-cap funds will impose the 2% fee on redemptions or exchanges of
fund shares made within 30 calendar days of a share purchase. For all other
MFS funds, except money market funds, the 2% fee will be imposed on
redemptions or exchanges made within 5 business days of a share purchase. See
the fund prospectus for more information.
We continue to use fair value pricing, a strategy that minimizes the potential
for investors to take advantage of "stale" prices. These can occur, as one
example, when funds own foreign securities whose prices close on overseas
exchanges in different time zones. At the same time, we enhanced our
monitoring of excessive trading. We did so by increasing our staff and
updating our computer systems to improve our ability to detect excessive
trading in our funds. Finally, we are supporting industry efforts to establish
a "hard" 4 p.m. close on all trading, which would prevent the possibility of
late trading.
In March, MFS reached a second settlement with the SEC under an administrative
proceeding resolving the SEC's investigation into how we disclosed brokerage
allocation practices in connection with fund sales. According to the
settlement order, we did not effectively disclose the potential conflict of
interest that may arise from these arrangements.
Under the terms of the settlement, MFS has agreed to pay one dollar in
disgorgement and $50 million in penalty to MFS fund shareholders. The
settlement noted that MFS had policies in place designed to obtain best
execution of all trades of securities within MFS portfolios.
This past November, MFS eliminated the above mentioned practice of directing
brokerage commissions to certain firms in recognition of fund sales.
Additionally, we announced in March that we would ban the use of soft dollars
to acquire third-party securities research and market data. Soft dollars are
permitted under federal securities laws. In fact, it is a common industry
practice to use a portion of the brokerage commissions to pay for certain
research and execution products and services that are provided to asset
managers. MFS will now pay cash out of its own pocket for third-party research
and market data.
MFS continues to be financially strong, with more than U.S. $140 billion (as
of 12/31/03) in assets under management, which continued to be stable during
the first quarter of 2004. We also have the full support of our parent
company, Sun Life Financial, an internationally diversified financial services
firm that manages more than U.S. $269 billion (as of 12/31/03).
We chose to settle these two proceedings with the SEC so we could concentrate
on serving our fund shareholders. As Chief Investment Officer, my focus is on
ensuring that our portfolio teams work closely together and take full
advantage of all the resources available to them to deliver the best possible
investment performance.
As the inventor of the open-end mutual fund in America in 1924, MFS has a
strong tradition and culture of innovation. By strengthening our business and
governance practices, we believe we have an unprecedented opportunity to set a
new standard in the mutual fund industry.
As I look ahead, I do so with confidence. The collaboration among MFS
employees, many of whom have worked at the firm for their entire careers,
continues as we remain singularly dedicated to our clients. It has been our
sincere privilege to serve you, and we thank you for the confidence that you
have shown in MFS.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer
MFS Investment Management(R)
March 15, 2004
Note to Shareholders: On February 6, 2004, Jeffrey L. Shames retired as
Chairman of MFS. Robert Pozen was named as non-executive Chairman. Also,
on February 6, 2004, Robert J. Manning was appointed Chief Executive Officer,
President, and Chief Investment Officer.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 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 turnaround in global stock markets that began in the spring of 2003
continued for most of the six-month period ended February 29, 2004. The
release of increasingly positive economic numbers as the period progressed,
particularly with regard to corporate earnings and GDP (gross domestic
product) growth, helped drive the equity rally. By late 2003, corporate
capital spending, which had been weak for some time, had also begun to
accelerate. Another driver of the equity rally, in our view, was the U.S.
Federal Reserve Board's decision to leave interest rates at a four-decade low
throughout the period. While energy prices rose late in the period, core
inflation -- excluding volatile food and energy prices -- remained very low
relative to historical averages. In contrast to the broader market which
continued to advance through February 2004, however, technology stocks
retreated somewhat in the last month of the quarter.
FUND POSITIONING
In August 2003, MFS Global Telecommunications Fund was reorganized and its
assets were merged with those of MFS Technology Fund. There were significant
synergies between the two funds; however, the addition of utilities and
telephone services companies reduced the combined funds' exposure to the more
pure technology industries.
DETRACTORS FROM PERFORMANCE
The fund's performance was hampered by stock selection and an underweighting in
the network and telecommunications industry, particularly in wireless and
wireline infrastructure companies. As the period began, we believed that
wireless and wireline companies would continue to hold back capital spending on
infrastructure as they had for the past few years. Instead, these companies
ramped up their spending, and infrastructure companies such as Nortel Networks,
Lucent Technologies, and QUALCOMM performed very well. Although the fund owned
stock in Nortel and QUALCOMM, we remained underweighted in these stocks relative
to the benchmark and missed some of the strong returns generated by the two
firms. As a result, these stocks held back relative returns. Not owning Lucent
stock similarly detracted from fund results.
- -----------------------------------------------
TOP 5 INDUSTRY WEIGHTINGS
AS OF 2/29/04
ELECTRONICS 31.0%
- -----------------------------------------------
NETWORK AND TELECOM EQUIPMENT 16.8%
- -----------------------------------------------
COMPUTER SOFTWARE 16.7%
- -----------------------------------------------
BUSINESS SERVICES 9.6%
- -----------------------------------------------
PC AND PERIPHERALS 9.0%
- -----------------------------------------------
The portfolio is actively managed, and current
weightings may be different.
- -----------------------------------------------
In addition, stock selection among Internet stocks held back fund returns.
Some of the stocks we owned underperformed the fund's benchmark, the Goldman
Sachs Technology Index, and some of the group's stocks that we did not own
outperformed the index.
The fund's positions in BISYS and White Electronic Designs also detracted from
performance. Information processing firm BISYS failed to meet its revenue
projections for its fee business and insurance divisions. The fund sold its
BISYS stock because of poor performance. White Electronic Designs manufactures
semiconductors used in military applications. When an accounting change
negatively affected how the company recognized revenue, the company's stock
price declined.
The fund's cash position also detracted from relative performance. As with
nearly all mutual funds, this fund holds some cash to buy new holdings and to
cover shareholder redemptions. In a period when equity markets rose sharply,
cash hurt performance against our benchmark which has no cash position.
CONTRIBUTORS TO PERFORMANCE
The addition of MFS Global Telecommunications Fund assets resulted in an
overweighting of wireless communications stocks in the combined fund which
contributed significantly to relative returns for the period. Stock selection
in the industry also added to performance, especially when our wireless
positions held their values better than other technology firms during the
downturn in February of 2004. Fund returns were helped by an overweighted
position in Andrew Corp., a wireless communications equipment company that we
believed was positioned to benefit from infrastructure spending.
Stock selection in the computer software industry was also strong. Examples
include the fund's holdings in Netscreen Technologies, which specializes in
network security solutions, and Akamai Technologies, which specializes in
"e-business" infrastructure. Both companies added to relative performance. The
fund sold its Netscreen position when the stock reached our price target.
The fund also benefited from relative underweightings in Microsoft, Intel, and
Dell during a period in which we observed that larger capitalization companies
tended to underperform the market as compared to smaller capitalization
companies. Our holdings in Flextronics International, which provides contract
manufacturing services for computer and electronics companies, also contributed
to the fund's relative return.
Respectfully,
/s/ David A. Antonelli
David A. Antonelli
Director of Global Equity Research
Note to Shareholders: Effective April 1, 2004, Daniel G. Scherman assumed
primary responsibility for the day-to-day management of the fund.
The views expressed in this report are those of the Director of Global Equity
Research only through the end of the period of the report as stated on the
cover and do not necessarily reflect the views of MFS or any other person in
the MFS organization. These views are subject to change at any time based on
market and other conditions, and MFS disclaims any responsibility to update
such views. These views may not be relied upon as investment advice or an
indication of trading intent on behalf of any MFS Fund. References to specific
securities are not recommendations of such securities, and may not be
representative of any MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Investment Perspective for our current
view of the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/29/04
- -------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Performance results reflect the percentage change
in net asset value, including the reinvestment of any dividends and capital
gains distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/1997 -- 53.54% -12.56% -6.15% 3.90%
- ------------------------------------------------------------------------------
B 4/14/2000 -- 52.85% -13.10% -6.62% 3.53%
- ------------------------------------------------------------------------------
C 4/14/2000 -- 52.52% -13.14% -6.66% 3.51%
- ------------------------------------------------------------------------------
I 1/02/1997 -- 54.06% -12.24% -5.79% 4.17%
- ------------------------------------------------------------------------------
R1 12/31/2002 -- 53.30% -12.65% -6.21% 3.85%
- ------------------------------------------------------------------------------
R2 10/31/2003 -- 53.57% -12.55% -6.15% 3.90%
- ------------------------------------------------------------------------------
Comparative benchmarks
- --------------------
Average annual
- --------------------
- ------------------------------------------------------------------------------
Average science and
technology fund+ 13.33% 61.10% -10.13% -2.84% 6.51%
- ------------------------------------------------------------------------------
Goldman Sachs Technology
Index#** 13.89% 55.88% -7.33% -5.10% 7.17%
- ------------------------------------------------------------------------------
Merrill Lynch 100
Technology Index# 16.81% 75.33% -5.86% 0.54% 8.81%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
- --------------------
Average annual
with sales charge
- --------------------
Share
class 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A -- 44.71% -14.27% -7.26% 3.04%
- ------------------------------------------------------------------------------
B -- 48.85% -13.97% -6.92% 3.53%
- ------------------------------------------------------------------------------
C -- 51.52% -13.14% -6.66% 3.51%
- ------------------------------------------------------------------------------
I, R1 and R2 class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 12.29% 53.54% -33.14% -27.20% 31.46%
- ------------------------------------------------------------------------------
B 12.05% 52.85% -34.37% -29.00% 28.21%
- ------------------------------------------------------------------------------
C 11.95% 52.52% -34.46% -29.13% 27.97%
- ------------------------------------------------------------------------------
I 12.57% 54.06% -32.41% -25.80% 33.98%
- ------------------------------------------------------------------------------
R1 12.20% 53.30% -33.36% -27.44% 31.03%
- ------------------------------------------------------------------------------
R2 12.31% 53.57% -33.13% -27.19% 31.48%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
January 2, 1997, through February 29, 2004. Index information is from January
1, 1997.
** 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.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Bloomberg L.P.
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 R1 and Class R2
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.
Performance results reflect any applicable subsidies and waivers in effect
during the periods shown. Without such subsidies and waivers, the fund's
performance would be less favorable. See the prospectus and financial
statements for details.
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 (unaudited) - 2/29/04
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 97.8%
- ----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------
U.S. Stocks - 76.0%
- ----------------------------------------------------------------------------------------------
Business Services - 7.9%
- ----------------------------------------------------------------------------------------------
Alliance Data Systems Corp.* 66,300 $1,985,685
- ----------------------------------------------------------------------------------------------
Computer Sciences Corp.* 29,809 1,245,718
- ----------------------------------------------------------------------------------------------
Digitas, Inc.*^ 263,010 2,622,210
- ----------------------------------------------------------------------------------------------
DST Systems, Inc.* 74,090 3,316,269
- ----------------------------------------------------------------------------------------------
Fiserv, Inc.* 34,700 1,339,767
- ----------------------------------------------------------------------------------------------
Getty Images, Inc.* 36,090 1,839,146
- ----------------------------------------------------------------------------------------------
Monster Worldwide, Inc.* 128,000 2,816,000
- ----------------------------------------------------------------------------------------------
Perot Systems Corp., "A"^ 172,000 2,377,040
- ----------------------------------------------------------------------------------------------
$17,541,835
- ----------------------------------------------------------------------------------------------
Computer Software - 14.4%
- ----------------------------------------------------------------------------------------------
Akamai Technologies, Inc.*^ 195,300 $2,929,500
- ----------------------------------------------------------------------------------------------
ANSYS, Inc.* 66,297 2,660,499
- ----------------------------------------------------------------------------------------------
Ascential Software Corp.* 65,100 1,468,656
- ----------------------------------------------------------------------------------------------
Aspect Communications Corp.* 45,600 823,536
- ----------------------------------------------------------------------------------------------
Manhattan Associates, Inc.* 68,150 1,953,179
- ----------------------------------------------------------------------------------------------
Microsoft Corp. 308,010 8,162,265
- ----------------------------------------------------------------------------------------------
Network Associates, Inc. 53,500 938,390
- ----------------------------------------------------------------------------------------------
Novell, Inc. 99,900 1,016,982
- ----------------------------------------------------------------------------------------------
Oracle Corp. 336,318 4,331,776
- ----------------------------------------------------------------------------------------------
RSA Security, Inc.^ 74,900 1,245,587
- ----------------------------------------------------------------------------------------------
SERENA Software, Inc.^ 95,100 1,969,521
- ----------------------------------------------------------------------------------------------
Sybase, Inc. 53,450 1,149,709
- ----------------------------------------------------------------------------------------------
VERITAS Software Corp. 108,120 3,289,010
- ----------------------------------------------------------------------------------------------
$31,938,610
- ----------------------------------------------------------------------------------------------
Computer Software - Systems - 6.8%
- ----------------------------------------------------------------------------------------------
Avnet, Inc.* 60,500 $1,424,775
- ----------------------------------------------------------------------------------------------
Black Box Corp.^ 23,400 1,205,334
- ----------------------------------------------------------------------------------------------
CDW Corp. 14,200 982,356
- ----------------------------------------------------------------------------------------------
Hewlett-Packard Co. 237,233 5,387,561
- ----------------------------------------------------------------------------------------------
International Business Machines Corp. 21,681 2,092,217
- ----------------------------------------------------------------------------------------------
QAD, Inc.^ 86,000 1,318,380
- ----------------------------------------------------------------------------------------------
Tech Data Corp. 30,760 1,244,857
- ----------------------------------------------------------------------------------------------
Xerox Corp.^ 90,940 1,285,892
- ----------------------------------------------------------------------------------------------
$14,941,372
- ----------------------------------------------------------------------------------------------
Electronics - 23.1%
- ----------------------------------------------------------------------------------------------
Agere Systems, Inc., "B"* 1,528,390 $5,670,327
- ----------------------------------------------------------------------------------------------
Amphenol Corp., "A"* 29,640 1,833,234
- ----------------------------------------------------------------------------------------------
Analog Devices, Inc. 97,730 4,876,727
- ----------------------------------------------------------------------------------------------
Applied Films Corp.* 51,900 1,807,158
- ----------------------------------------------------------------------------------------------
Applied Materials, Inc.* 84,100 1,786,284
- ----------------------------------------------------------------------------------------------
Arrow Electronics, Inc.* 66,560 1,637,376
- ----------------------------------------------------------------------------------------------
Benchmark Electronics, Inc.* 32,100 1,117,401
- ----------------------------------------------------------------------------------------------
Cymer, Inc.* 70,600 2,720,924
- ----------------------------------------------------------------------------------------------
DSP Group, Inc.*^ 36,500 929,655
- ----------------------------------------------------------------------------------------------
ESS Technology, Inc.* 52,010 820,718
- ----------------------------------------------------------------------------------------------
Integrated Circuit Systems, Inc.* 41,500 1,142,910
- ----------------------------------------------------------------------------------------------
Intel Corp. 276,883 8,093,290
- ----------------------------------------------------------------------------------------------
International Rectifier Corp.* 30,169 1,392,601
- ----------------------------------------------------------------------------------------------
Lam Research Corp.* 32,600 833,582
- ----------------------------------------------------------------------------------------------
National Semiconductor Corp.* 59,600 2,345,856
- ----------------------------------------------------------------------------------------------
PerkinElmer, Inc. 26,850 559,554
- ----------------------------------------------------------------------------------------------
Power Integrations, Inc. 26,200 772,376
- ----------------------------------------------------------------------------------------------
SanDisk Corp.^ 46,200 1,171,632
- ----------------------------------------------------------------------------------------------
Skyworks Solutions, Inc.^ 88,900 1,002,792
- ----------------------------------------------------------------------------------------------
Texas Instruments, Inc. 158,360 4,853,734
- ----------------------------------------------------------------------------------------------
Vishay Intertechnology, Inc.^ 180,100 4,054,051
- ----------------------------------------------------------------------------------------------
White Electronic Designs Corp.^ 127,510 1,014,979
- ----------------------------------------------------------------------------------------------
Xilinx, Inc. 16,420 690,297
- ----------------------------------------------------------------------------------------------
$51,127,458
- ----------------------------------------------------------------------------------------------
Internet - 2.6%
- ----------------------------------------------------------------------------------------------
Digital River, Inc.*^ 126,000 $2,758,140
- ----------------------------------------------------------------------------------------------
EarthLink, Inc.* 335,500 3,063,115
- ----------------------------------------------------------------------------------------------
$5,821,255
- ----------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 5.1%
- ----------------------------------------------------------------------------------------------
Avid Technology, Inc.* 18,150 $770,831
- ----------------------------------------------------------------------------------------------
Dell, Inc.* 171,713 5,606,429
- ----------------------------------------------------------------------------------------------
Ingram Micro, Inc., "A"* 32,330 613,623
- ----------------------------------------------------------------------------------------------
Jabil Circuit, Inc.* 27,220 761,616
- ----------------------------------------------------------------------------------------------
Sanmina-Sci Corp. 158,690 2,013,776
- ----------------------------------------------------------------------------------------------
Solectron Corp. 92,600 591,714
- ----------------------------------------------------------------------------------------------
Western Digital Corp. 72,620 827,142
- ----------------------------------------------------------------------------------------------
$11,185,131
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.4%
- ----------------------------------------------------------------------------------------------
Andrew Corp.* 178,900 $3,187,998
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 14.5%
- ----------------------------------------------------------------------------------------------
ADTRAN, Inc. 94,400 $3,073,664
- ----------------------------------------------------------------------------------------------
At Road, Inc.*^ 54,400 650,080
- ----------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 504,343 11,650,323
- ----------------------------------------------------------------------------------------------
F5 Networks, Inc.* 26,400 873,576
- ----------------------------------------------------------------------------------------------
Foundry Networks, Inc.* 27,000 637,200
- ----------------------------------------------------------------------------------------------
Juniper Networks, Inc.*^ 80,800 2,090,296
- ----------------------------------------------------------------------------------------------
Motorola, Inc. 224,755 4,146,730
- ----------------------------------------------------------------------------------------------
Powerwave Technologies, Inc. 112,300 1,108,401
- ----------------------------------------------------------------------------------------------
QUALCOMM, Inc. 69,800 4,428,810
- ----------------------------------------------------------------------------------------------
Scientific-Atlanta, Inc. 77,620 2,569,222
- ----------------------------------------------------------------------------------------------
UTStarcom, Inc.^ 22,600 748,761
- ----------------------------------------------------------------------------------------------
$31,977,063
- ----------------------------------------------------------------------------------------------
Telephone Services - 0.2%
- ----------------------------------------------------------------------------------------------
Cincinnati Bell, Inc.* 89,870 $462,830
- ----------------------------------------------------------------------------------------------
Total U.S. Stocks $168,183,552
- ----------------------------------------------------------------------------------------------
Foreign Stocks - 21.8%
- ----------------------------------------------------------------------------------------------
Bermuda - 2.5%
- ----------------------------------------------------------------------------------------------
Accenture Ltd., "A" (Business Services)* 145,130 $3,352,503
- ----------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. (Electronics)* 46,350 2,110,315
- ----------------------------------------------------------------------------------------------
$5,462,818
- ----------------------------------------------------------------------------------------------
Canada - 3.8%
- ----------------------------------------------------------------------------------------------
ATI Technologies, Inc. (Personal Computers &
Peripherals)*^ 160,180 $2,494,003
- ----------------------------------------------------------------------------------------------
Nortel Networks Corp. (Telecommunications - Wireline) 566,100 4,517,478
- ----------------------------------------------------------------------------------------------
Open Text Corp. (Computer Software)^ 48,000 1,427,040
- ----------------------------------------------------------------------------------------------
$8,438,521
- ----------------------------------------------------------------------------------------------
Cayman Islands - 0.6%
- ----------------------------------------------------------------------------------------------
Seagate Technology LLC (Personal Computers &
Peripherals)^ 81,300 $1,406,490
- ----------------------------------------------------------------------------------------------
France - 1.0%
- ----------------------------------------------------------------------------------------------
France Telecom S.A. (Telephone Services) 79,260 $2,186,212
- ----------------------------------------------------------------------------------------------
Germany - 1.4%
- ----------------------------------------------------------------------------------------------
EPCOS AG (Electronics)^ 91,600 $2,186,971
- ----------------------------------------------------------------------------------------------
SAP Aktiengesellschaft, ADR (Computer Software) 25,950 1,027,620
- ----------------------------------------------------------------------------------------------
$3,214,591
- ----------------------------------------------------------------------------------------------
Japan - 3.5%
- ----------------------------------------------------------------------------------------------
Canon, Inc., ADR (Personal Computers & Peripherals) 48,100 $2,364,115
- ----------------------------------------------------------------------------------------------
Fujikura Ltd. (Electrical Equipment)^ 217,000 1,054,854
- ----------------------------------------------------------------------------------------------
KDDI Corp. (Telephone Services) 114 591,734
- ----------------------------------------------------------------------------------------------
Seiko Epson Corp. (Electronics) 43,000 1,511,603
- ----------------------------------------------------------------------------------------------
Stanley Electric Co. Ltd. (Electronics) 61,400 1,045,489
- ----------------------------------------------------------------------------------------------
Tamron Co. Ltd. (Leisure & Toys)^ 27,000 1,134,527
- ----------------------------------------------------------------------------------------------
$7,702,322
- ----------------------------------------------------------------------------------------------
Mexico - 0.8%
- ----------------------------------------------------------------------------------------------
America Movil S.A. de C.V., ADR (Telecommunications -
Wireless)^ 52,640 $1,877,142
- ----------------------------------------------------------------------------------------------
Netherlands - 1.5%
- ----------------------------------------------------------------------------------------------
ASML Holding N.V. (Electronics)* 26,500 $483,890
- ----------------------------------------------------------------------------------------------
Royal KPN N.V. (Telephone Services) 89,480 706,923
- ----------------------------------------------------------------------------------------------
STMicroelectronics N.V., ADR (Telephone Services)^ 79,540 2,056,109
- ----------------------------------------------------------------------------------------------
$3,246,922
- ----------------------------------------------------------------------------------------------
Singapore - 1.3%
- ----------------------------------------------------------------------------------------------
Flextronics International Ltd. (Personal Computers &
Peripherals)* 111,410 $2,016,521
- ----------------------------------------------------------------------------------------------
MobileOne Ltd. (Telecommunications - Wireless) 913,000 831,585
- ----------------------------------------------------------------------------------------------
$2,848,106
- ----------------------------------------------------------------------------------------------
South Korea - 2.8%
- ----------------------------------------------------------------------------------------------
Samsung Electronics Co. Ltd., GDR (Electronics) 21,425 $5,002,738
- ----------------------------------------------------------------------------------------------
Samsung SDI Co. Ltd., GDR (Electrical Equipment) 33,400 1,138,272
- ----------------------------------------------------------------------------------------------
$6,141,010
- ----------------------------------------------------------------------------------------------
Taiwan - 0.4%
- ----------------------------------------------------------------------------------------------
AU Optronics Corp., ADR (Electronics) 51,490 $885,628
- ----------------------------------------------------------------------------------------------
United Kingdom - 2.2%
- ----------------------------------------------------------------------------------------------
Amdocs Ltd. (Computer Software)* 65,300 $1,820,564
- ----------------------------------------------------------------------------------------------
ARM Holdings PLC (Electronics) 370,300 832,972
- ----------------------------------------------------------------------------------------------
Vodafone Group PLC (Telecommunications - Wireless)* 847,940 2,116,267
- ----------------------------------------------------------------------------------------------
$4,769,803
- ----------------------------------------------------------------------------------------------
Total Foreign Stocks $48,179,565
- ----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $182,884,314) $216,363,117
- ----------------------------------------------------------------------------------------------
Convertible Bond - 0.3%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 Omitted)
- ----------------------------------------------------------------------------------------------
Computer Software - Systems - 0.3%
- ----------------------------------------------------------------------------------------------
Brocade Communications Systems, Inc., 2%, 2007
(Identified Cost, $737,181) $738 $681,728
- ----------------------------------------------------------------------------------------------
Short-Term Obligation - 1.8%
- ----------------------------------------------------------------------------------------------
General Electric Capital Corp., due 3/01/04,
at Amortized Cost $3,901 $3,901,000
- ----------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 13.1%
- ----------------------------------------------------------------------------------------------
SHARES
- ----------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at
Identified Cost 28,990,281 $28,990,281
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $216,512,776) $249,936,126
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (13.0)% (28,684,805)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $221,251,321
- ----------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
See notes to financial statements.
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 2/29/04
ASSETS
Investments, at value, including $28,162,687 of securities
on loan (identified cost, $216,512,776) $249,936,126
- --------------------------------------------------------------------------------------------------
Cash 763
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 433,441
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 236,065
- --------------------------------------------------------------------------------------------------
Interest and dividends receivable 50,044
- --------------------------------------------------------------------------------------------------
Total assets $250,656,439
- --------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares reacquired $380,442
- --------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 28,990,281
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 13,484
- --------------------------------------------------------------------------------------------------
Reimbursement fee 9,848
- --------------------------------------------------------------------------------------------------
Distribution and service fee 11,063
- --------------------------------------------------------------------------------------------------
Total liabilities $29,405,118
- --------------------------------------------------------------------------------------------------
Net assets $221,251,321
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $550,167,715
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 33,423,376
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (360,848,088)
- --------------------------------------------------------------------------------------------------
Accumulated net investment loss (1,491,682)
- --------------------------------------------------------------------------------------------------
Total $221,251,321
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 23,960,062
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $123,479,577
- --------------------------------------------------------------------------------------------------
Shares outstanding 13,242,232
- --------------------------------------------------------------------------------------------------
Net asset value per share $9.32
- --------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$9.32) $9.89
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $69,134,862
- --------------------------------------------------------------------------------------------------
Shares outstanding 7,592,150
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.11
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $23,033,796
- --------------------------------------------------------------------------------------------------
Shares outstanding 2,533,497
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.09
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $4,838,645
- --------------------------------------------------------------------------------------------------
Shares outstanding 509,914
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $9.49
- --------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $759,135
- --------------------------------------------------------------------------------------------------
Shares outstanding 81,698
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $9.29
- --------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $5,306
- --------------------------------------------------------------------------------------------------
Shares outstanding 571
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $9.29
- --------------------------------------------------------------------------------------------------
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 (unaudited)
- --------------------------------------------------------------------------------------------------
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 THE SIX MONTHS ENDED 2/29/04
NET INVESTMENT INCOME (LOSS)
Income
- --------------------------------------------------------------------------------------------------
Dividends $298,346
- --------------------------------------------------------------------------------------------------
Interest 47,210
- --------------------------------------------------------------------------------------------------
Income on securities loaned 26,275
- --------------------------------------------------------------------------------------------------
Foreign taxes withheld (12,136)
- --------------------------------------------------------------------------------------------------
Total investment income $359,695
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $783,485
- --------------------------------------------------------------------------------------------------
Trustees' compensation 11,265
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 346,474
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 199,615
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 336,860
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 112,634
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 912
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 8
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 4
- --------------------------------------------------------------------------------------------------
Administrative fee 6,472
- --------------------------------------------------------------------------------------------------
Custodian fee 50,726
- --------------------------------------------------------------------------------------------------
Printing 64,844
- --------------------------------------------------------------------------------------------------
Postage 33,342
- --------------------------------------------------------------------------------------------------
Auditing fees 41,601
- --------------------------------------------------------------------------------------------------
Legal fees 496
- --------------------------------------------------------------------------------------------------
Registration fees 72,125
- --------------------------------------------------------------------------------------------------
Miscellaneous 46,704
- --------------------------------------------------------------------------------------------------
Total expenses $2,107,567
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (7,504)
- --------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (248,686)
- --------------------------------------------------------------------------------------------------
Net expenses $1,851,377
- --------------------------------------------------------------------------------------------------
Net investment loss $(1,491,682)
- --------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $21,344,866
- --------------------------------------------------------------------------------------------------
Foreign currency transactions (5,046)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $21,339,820
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation
- --------------------------------------------------------------------------------------------------
Investments $3,572,761
- --------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies 2,582
- --------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $3,575,343
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $24,915,163
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $23,423,481
- --------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/29/04 8/31/03
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $(1,491,682) $(1,360,190)
- -------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 21,339,820 (11,939,491)
- -------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation 3,575,343 46,886,316
- ------------------------------------------------------- -------------- -----------
Increase in net assets from operations $23,423,481 $33,586,635
- ------------------------------------------------------- -------------- -----------
Net increase in net assets from fund share transactions $10,853,897 $60,726,943
- ------------------------------------------------------- -------------- -----------
Total increase in net assets $34,277,378 $94,313,578
- ------------------------------------------------------- -------------- -----------
NET ASSETS
At beginning of period $186,973,943 $92,660,365
- -------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $1,491,682 and $0, respectively) $221,251,321 $186,973,943
- -------------------------------------------------------------------------------------------------
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 semiannual period
and 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) held for the entire period. 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.
SIX MONTHS YEAR ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS A 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $8.30 $6.25 $10.70 $28.03 $18.34 $11.49
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.05) $(0.07) $(0.11) $(0.14) $(0.17) $(0.08)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 1.07 2.12 (4.34) (16.69) 14.44 7.44
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $1.02 $2.05 $(4.45) $(16.83) $14.27 $7.36
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 -- -- -- (0.00)+++ -- --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.50) $(4.58) $(0.51)
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $9.32 $8.30 $6.25 $10.70 $28.03 $18.34
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+) 12.29++ 32.80 (41.53) (61.02) (87.93) (65.25)
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS A (CONTINUED) 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.50+ 1.52 1.51 1.52 1.40 1.17
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.15)+ (1.05) (1.22) (0.87) (0.81) (0.83)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 81 162 210 413 294 104
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $123,480 $101,059 $53,142 $66,358 $57,382 $1,658
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective April 14, 2000, MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other
Expenses", which are defined as the fund's operating expenses, exclusive of management, distribution and service, and
certain other fees and expenses, such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS
bearing all of the fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee
not greater than 0.40% of average daily net assets for Class A. To the extent that the expense reimbursement fee exceeds
the fund's actual expenses, the excess will be applied to unreimbursed amounts paid by MFS under the current agreement.
This agreement will terminate on the earlier of December 31, 2004, or such date as all expenses previously borne by MFS
under the agreement have been paid by the fund. The fund will not be required to reimburse MFS for expenses borne under a
previous agreement that expired on December 31, 2003. 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) $(0.09) $(0.13) $(0.14) $(0.27) $(0.20)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.74+ 1.76 1.74 1.55 1.84 2.42
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.39)+ (1.29) (1.45) (0.90) (1.25) (2.08)
- ------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS YEAR ENDED 8/31 PERIOD
ENDED ------------------------------------------- ENDED
CLASS B 2/29/04 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning of period $8.13 $6.16 $10.61 $27.95 $17.86
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.08) $(0.11) $(0.17) $(0.25) $(0.14)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 1.06 2.08 (4.28) (16.64) 10.23
- ----------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.98 $1.97 $(4.45) $(16.89) $10.09
- ----------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
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 -- -- -- (0.00)+++ --
- ----------------------------------------------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.45) $--
- ----------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $9.11 $8.13 $6.16 $10.61 $27.95
- ----------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 12.05++ 31.98 (41.94) (61.28) 56.49++
- -----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31 PERIOD
ENDED ------------------------------------------- ENDED
CLASS B (CONTINUED) 2/29/04 2003 2002 2001 8/31/00*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.15+ 2.18 2.16 2.17 2.14+
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.79)+ (1.71) (1.87) (1.52) (1.52)+
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 81 162 210 413 294
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $69,135 $61,353 $25,997 $44,369 $48,845
- -----------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and expenses,
such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of
average daily net assets for Class B. To the extent that the expense reimbursement fee exceeds the fund's actual expenses,
the excess will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate
on the earlier of December 31, 2004, or such date as all expenses previously borne by MFS under the agreement have been
paid by the fund. The fund will not be required to reimburse MFS for expenses borne under a previous agreement that expired
on December 31, 2003. 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) $(0.12) $(0.19) $(0.25) $(0.18)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.39+ 2.42 2.39 2.20 2.58+
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (2.03)+ (1.95) (2.10) (1.55) (1.96)+
- -----------------------------------------------------------------------------------------------------------------------------
* For the period from the inception 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 reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31 PERIOD
ENDED ------------------------------------------- ENDED
CLASS C 2/29/04 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning of period $8.12 $6.16 $10.61 $27.95 $17.86
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.08) $(0.11) $(0.17) $(0.25) $(0.15)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 1.05 2.07 (4.28) (16.64) 10.24
- ---------------------------------------------- ------- ------ ------ ------ ------
Total from investment operations $0.97 $1.96 $(4.45) $(16.89) $10.09
- ---------------------------------------------- ------- ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
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 -- -- -- (0.00)+++ --
- ---------------------------------------------- ------- ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.45) $--
- ---------------------------------------------- ------- ------ ------ ------ ------
Net asset value, end of period $9.09 $8.12 $6.16 $10.61 $27.95
- ---------------------------------------------- ------- ------ ------ ------ ------
Total return (%) 11.95++ 31.82 (41.94) (61.27) 56.49++
- -----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31 PERIOD
ENDED ------------------------------------------- ENDED
CLASS C (CONTINUED) 2/29/04 2003 2002 2001 8/31/00*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S)
Expenses## 2.15+ 2.18 2.16 2.17 2.14+
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.79)+ (1.71) (1.87) (1.52) (1.52)+
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 81 162 210 413 294
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $23,034 $20,210 $10,476 $17,298 $17,410
- -----------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and expenses,
such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of
average daily net assets for Class C. To the extent that the expense reimbursement fee exceeds the fund's actual expenses,
the excess will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate
on the earlier of December 31, 2004, or such date as all expenses previously borne by MFS under the agreement have been
paid by the fund. The fund will not be required to reimburse MFS for expenses borne under a previous agreement that expired
on December 31, 2003. 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) $(0.12) $(0.19) $(0.25) $(0.19)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.39+ 2.42 2.39 2.20 2.58+
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (2.03)+ (1.95) (2.10) (1.55) (1.96)+
- -----------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of 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 reductions from fees paid indirectly.
See notes to financial statements.
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31
ENDED ----------------------------------------------------------------------
CLASS I 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $8.43 $6.33 $10.79 $28.08 $18.34 $11.50
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.04) $(0.05) $(0.08) $(0.09) $(0.12) $(0.22)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investments and foreign currency 1.10 2.15 (4.38) (16.68) 14.44 7.57
- ------------------------------------- ------- ------ ------ ------ ------ ------
Total from investment operations $1.06 $2.10 $(4.46) $(16.77) $14.32 $7.35
- ------------------------------------- ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
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 -- -- -- (0.00)+++ -- --
- ------------------------------------- ------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.52) $(4.58) $(0.51)
- ------------------------------------- ------- ------ ------ ------ ------ ------
Net asset value, end of period $9.49 $8.43 $6.33 $10.79 $28.08 $18.34
- ------------------------------------- ------- ------ ------ ------ ------ ------
Total return (%) 12.57++ 33.18 (41.33) (60.69) 88.31 65.25
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS I (CONTINUED) 2/29/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.15+ 1.17 1.16 1.17 1.09 1.17
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.80)+ (0.71) (0.87) (0.53) (0.57) (0.84)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 81 162 210 413 294 104
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $4,838 $4,179 $3,045 $5,357 $11,216 $2,530
- -------------------------------------------------------------------------------------------------------------------------------
(S) Effective April 14, 2000, MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other
Expenses", which are defined as the fund's operating expenses, exclusive of management, and certain other fees and
expenses, such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the
fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than
0.40% of average daily net assets for Class I. To the extent that the expense reimbursement fee exceeds the fund's actual
expenses, the excess will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will
terminate on the earlier of December 31, 2004, or such date as all expenses previously borne by MFS under the agreement
have been paid by the fund. The fund will not be required to reimburse MFS for expenses borne under a previous agreement
that expired on December 31, 2003. Prior to April 14, 2000, the investment adviser waived its 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 $(0.05) $(0.06) $(0.10) $(0.10) $(0.21) $(0.41)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.39+ 1.41 1.39 1.20 1.53 1.92
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.04)+ (0.95) (1.10) (0.56) (1.01) (1.59)
- -------------------------------------------------------------------------------------------------------------------------------
+ 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
SIX MONTHS PERIOD
ENDED ENDED
CLASS R1 2/29/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $8.28 $6.17
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.06) $(0.08)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 1.07 2.19
- --------------------------------------------------------------------- --------- ------
Total from investment operations $1.01 $2.11
- --------------------------------------------------------------------- --------- ------
Net asset value, end of period $9.29 $8.28
- --------------------------------------------------------------------- --------- ------
Total return (%) 12.20++ 34.20++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.67+ 1.64+
- -------------------------------------------------------------------------------------------------------
Net investment loss (1.37)+ (1.22)+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 81 162
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $759 $173
- -------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other
Expenses", which are defined as the fund's operating expenses, exclusive of management,
distribution and service, and certain other fees and expenses, such that Other Expenses do not
exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses
during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than
0.40% of average daily net assets for Class R1. To the extent that the expense reimbursement fee
exceeds the fund's actual expenses, the excess will be applied to unreimbursed amounts paid by MFS
under the current agreement. This agreement will terminate on the earlier of December 31, 2004, or
such date as all expenses previously borne by MFS under the agreement have been paid by the fund.
The fund will not be required to reimburse MFS for expenses borne under a previous agreement that
expired on December 31, 2003. To the extent actual expenses were over this limitation, the net
investment loss per share and the ratios would have been:
Net investment loss $(0.07) $(0.10)
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.91+ 1.88+
- -------------------------------------------------------------------------------------------------------
Net investment loss (1.61)+ (1.46)+
- -------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 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
PERIOD
ENDED
CLASS R2 2/29/04*
(UNAUDITED)
Net asset value, beginning of period $8.74
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.05)
- ----------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 0.60
- ------------------------------------------------------------------ -------
Total from investment operations $0.55
- ------------------------------------------------------------------ -------
Net asset value, end of period $9.29
- ------------------------------------------------------------------ -------
Total return (%) 6.29++
- ----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 1.90+
- ----------------------------------------------------------------------------
Net investment loss (1.67)+
- ----------------------------------------------------------------------------
Portfolio turnover 81
- ----------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $5
- ----------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion
of the fund's "Other Expenses", which are defined as the fund's operating
expenses, exclusive of management, distribution and service, and certain
other fees and expenses, such that Other Expenses do not exceed 0.40%
annually. This arrangement is effected by MFS bearing all of the fund's
Other Expenses during the fund's fiscal year and the fund paying MFS an
expense reimbursement fee not greater than 0.65% of average daily net
assets for Class R2. To the extent that the expense reimbursement fee
exceeds the fund's actual expenses, the excess will be applied to
unreimbursed amounts paid by MFS under the current agreement. This
agreement will terminate on the earlier of December 31, 2004, or such date
as all expenses previously borne by MFS under the agreement have been paid
by the fund. The fund will not be required to reimburse MFS for expenses
borne under a previous agreement that expired on December 31, 2003. 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)
- ----------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.14+
- ----------------------------------------------------------------------------
Net investment loss (1.91)+
- ----------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through February 29, 2004.
+ 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 (unaudited)
- ------------------------------------------------------------------------------
(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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market prices where current market
prices are readily available, or the fund may fair value portfolio securities
under the direction of the Board of Trustees when a determination is made that
current market prices are not readily available. Equity securities in the
fund's portfolio for which market quotations are available are valued at the
last sale or official closing price as reported by an independent pricing
service 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. Equity securities traded over the counter are valued at the
last sales price traded each day as reported by an independent pricing
service, or to the extent there are no sales reported, such securities are
valued on the basis of quotations obtained from brokers and dealers. Equity
securities for which it is determined that current market prices are not
readily available will be fair valued under the direction of the Board of
Trustees. The fund may also fair value foreign equity securities in cases
where closing market prices are not readily available or are deemed not
reflective of readily available market prices. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the fund calculates its net
asset value (generally, the close of the New York Stock Exchange) that may
impact the value of securities traded in these foreign markets. In these
cases, the fund may utilize information from an external vendor or other
sources to adjust closing market prices of foreign equity securities to
reflect what it believes to be the fair value of the securities as of the
fund's valuation time. Because the frequency of significant events is not
predictable, fair valuation of foreign equity securities may occur on a
frequent basis. Short-term obligations with a remaining maturity in excess of
60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the fund's portfolio are valued at amortized cost, which
constitutes market value as determined by the Board of Trustees. Money market
mutual funds are valued at net asset value. 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.
FOREIGN CURRENCY TRANSLATION - 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.
On loans collateralized by cash, the cash collateral is invested in a money
market fund and 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 disclosed 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 accounting principles generally accepted in the United States
of America. 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 six months ended February 29, 2004, the fund's custodian
fees were reduced by $301 under this arrangement. The fund has entered into a
commission recapture agreement under which certain brokers will credit the
fund a portion of the commissions generated to offset certain expenses of the
fund. For the six months ended February 29, 2004, the fund's miscellaneous
expenses were reduced by $7,203 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.
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)
- --------------------------------------------------------------------------------
Post-October capital loss deferral (17,293,212)
- --------------------------------------------------------------------------------
Unrealized appreciation 26,018,772
- --------------------------------------------------------------------------------
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.
MFS has contractually agreed, subject to reimbursement, to bear a portion of
the fund's "Other Expenses", which are defined as the fund's operating
expenses, exclusive of management, distribution and service, and certain other
fees and expenses, such that Other Expenses do not exceed 0.40% annually. This
arrangement is effected by MFS bearing all of the fund's Other Expenses during
the fund's fiscal year and the fund paying 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 R1 and not greater than 0.65% of average daily net
assets for Class R2. To the extent that the expense reimbursement fee exceeds
the fund's actual expenses, the excess will be applied to unreimbursed amounts
paid by MFS under the current agreement. This agreement will terminate on the
earlier of December 31, 2004, or such date as all expenses previously borne by
MFS under the agreement have been paid by the fund. At February 29, 2004,
aggregate unreimbursed expenses amounted to $99,127. The fund will not be
required to reimburse MFS the $307,920 for expenses borne under a previous
agreement that expired 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 retired Trustees and an unfunded
retirement benefit deferral plan for current Trustees. Included in Trustees'
compensation is a net decrease of $11,176 as a result of the change in the
fund's pension liability for current Trustees and a pension expense of $308 for
retired Trustees for the six months ended February 29, 2004.
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 up to the following annual percentage rates 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%
---------------------------------------------------------
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to Class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in Class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of Class R2 shares to MFS
for the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$11,380 for the six months ended February 29, 2004, 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,
Class R1 and Class R2, 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- -------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- -------------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- -------------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the six months ended
February 29, 2004, amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $15,001 $498 $133 $-- $--
- -------------------------------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February 29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual Percentage Rates 0.35% 1.00% 1.00% 0.50% 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 six months ended February 29, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Contingent Deferred Sales Charges Imposed $842 $105,664 $1,039 $-- $--
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, 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%, which amounted to
$114,944 for the six months ended February 29, 2004. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $95,269 for the six months ended February 29, 2004, as well as
other expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$175,982,439 and $164,032,675, 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 $220,342,037
---------------------------------------------------------
Gross unrealized appreciation $34,001,014
Gross unrealized depreciation (4,406,925)
---------------------------------------------------------
Net unrealized appreciation $29,594,089
---------------------------------------------------------
(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:
Six months ended Year ended
2/29/04 8/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 5,213,205 $46,646,117 9,448,114 $63,395,440
- --------------------------------------------------------------------------------------------------------
Shares issued in connection with
acquisition of MFS Global
Telecommunications Fund -- -- 1,839,638 14,901,068
- --------------------------------------------------------------------------------------------------------
Shares reacquired (4,144,831) (37,132,589) (7,616,011) (50,311,511)
- --------------------------------------------------------------------------------------------------------
Net increase 1,068,374 $9,513,528 3,671,741 $27,984,997
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,274,114 $11,034,285 3,032,467 $19,714,861
- --------------------------------------------------------------------------------------------------------
Shares issued in connection with
acquisition of MFS Global
Telecommunications Fund -- -- 2,762,550 21,934,645
- --------------------------------------------------------------------------------------------------------
Shares reacquired (1,226,209) (10,710,913) (2,469,022) (15,806,043)
- --------------------------------------------------------------------------------------------------------
Net increase 47,905 $323,372 3,325,995 $25,843,463
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 477,508 $4,128,574 849,500 $5,510,207
- --------------------------------------------------------------------------------------------------------
Shares issued in connection with
acquisition of MFS Global
Telecommunications Fund -- -- 968,256 7,678,267
- --------------------------------------------------------------------------------------------------------
Shares reacquired (431,960) (3,817,792) (1,031,392) (6,564,065)
- --------------------------------------------------------------------------------------------------------
Net increase 45,548 $310,782 786,364 $6,624,409
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 99,855 $894,333 329,752 $2,279,072
- --------------------------------------------------------------------------------------------------------
Shares reacquired (85,467) (763,461) (315,329) (2,147,421)
- --------------------------------------------------------------------------------------------------------
Net increase 14,388 $130,872 14,423 $131,651
- --------------------------------------------------------------------------------------------------------
Six months ended Period ended
2/29/04 8/31/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 80,025 $744,535 95,762 $713,389
- --------------------------------------------------------------------------------------------------------
Shares reacquired (19,215) (174,212) (74,874) (570,966)
- --------------------------------------------------------------------------------------------------------
Net increase 60,810 $570,323 20,888 $142,423
- --------------------------------------------------------------------------------------------------------
Period ended
2/29/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 571 $5,020
- --------------------------------------------------------------------------
Net increase 571 $5,020
- --------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
** For the period from the inception of Class R2 shares, October 31, 2003, through February 29, 2004.
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the six months ended February 29, 2004, was $790.
The fund had no borrowings during the period.
(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 shares 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
Telecommunications 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.
(8) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding regarding
disclosure of brokerage allocation practices in connection with fund sales.
Under the terms of the settlement, in which MFS neither admitted nor denied
any wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement and $50
million in penalty to certain MFS funds, pursuant to a plan to be approved by
an independent distribution consultant. The agreement with the SEC is
reflected in an order of the SEC. The settlement order states that MFS failed
to adequately disclose to the Boards of Trustees and to shareholders of the
MFS funds the specifics of its preferred arrangements with certain brokerage
firms selling MFS fund shares. The settlement order states that MFS had in
place policies designed to obtain best execution of all fund trades.
As part of the settlement, MFS also agreed to retain an independent compliance
consultant to review the completeness of its disclosure to fund trustees and
to fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial advisers who support the sale of fund
shares. The brokerage allocation practices which were the subject of this
proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the Securities and
Exchange Commission ("SEC"), the New York Attorney General ("NYAG") and the
Bureau of Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in
certain MFS fund prospectuses regarding market timing and related matters (the
"February Settlements"). These regulators alleged that prospectus language for
certain MFS funds was false and misleading because, although the prospectuses
for those funds in the regulators' view indicated that the funds prohibited
market timing, MFS did not limit trading activity in 11 domestic large cap
stock, high grade bond and money market funds.
MFS' former Chief Executive Officer, John W. Ballen, and former President,
Kevin R. Parke, have also reached agreement with the SEC (Messrs. Ballen
and Parke resigned their director and officer positions with MFS on
February 13, 2004). Under the terms of the February Settlements, MFS and the
executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Boards of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with the
NYAG to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH will retain $250,000 and $750,000 will be contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, MFS and the Retail Funds will adopt certain governance changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as
trustees of all MFS funds, and Mr. Ballen resigned his position as President
of all MFS funds, effective February 6, 2004. Messrs. Ballen and Parke will
not be returning to MFS or the MFS funds after their suspensions.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The
lawsuits variously have been commenced as class actions or individual actions
on behalf of investors who purchased, held or redeemed shares of the funds
during specified periods, as class actions on behalf of participants in
certain retirement plan accounts, or as derivative actions on behalf of the
MFS funds. The lawsuits generally allege that some or all of the defendants
(i) permitted or acquiesced in market timing and/or late trading in some of
the MFS funds, inadequately disclosed MFS' internal policies concerning market
timing and such matters, and received excessive compensation as fiduciaries to
the MFS fund, or (ii) permitted or acquiesced in the improper use of fund
assets by MFS to support the distribution of fund shares and inadequately
disclosed MFS' use of fund assets in this manner. The actions assert that some
or all of the defendants violated the federal securities laws, including the
Securities Act of 1933 and the Securities Exchange Act of 1934, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, the Employee
Retirement Income Security Act of 1974, as well as fiduciary duties and other
violations of common law. The lawsuits seek unspecified compensatory damages.
Insofar as any of the actions is appropriately brought derivatively on behalf
of any of the MFS funds, any recovery will inure to the benefit of the funds.
The defendants are reviewing the allegations of the multiple complaints and
will respond appropriately. Additional lawsuits based on similar allegations
may be filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS
has established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the
funds, and will pay $50 million to compensate certain MFS funds based upon the
amount of brokerage commissions allocated in recognition of fund sales. It is
not clear whether these amounts will be sufficient to compensate shareholders
for all of the damage they allegedly sustained, whether certain shareholders
or putative class members may have additional claims to compensation, or
whether the damages that may be awarded in any of the actions will exceed
these amounts. In the event the MFS funds incur any losses, costs or expenses
in connection with such lawsuits, the Boards of Trustees of the affected funds
may pursue claims on behalf of such funds against any party that may have
liability to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
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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
JOHN W. BALLEN(2)(5) (born 09/12/59) DAVID H. GUNNING(4) (born 05/30/42)
Trustee and President Trustee
Massachusetts Financial Services Company, Chief Cleveland-Cliffs Inc. (mining products and service
Executive Officer and Director (until February provider), Vice Chairman/Director (since April
2004) 2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
ROBERT J. MANNING(2)(7) (born 10/20/63) Electric Holdings, Inc. (welding equipment
Trustee manufacturer), Director; Southwest Gas Corporation
Massachusetts Financial Services Company, Chief (natural gas distribution company), Director
Executive Officer, President, Chief Investment
Officer and Director WILLIAM R. GUTOW (born 09/27/41)
Trustee
KEVIN R. PARKE(2)(5) (born 12/14/59) Private investor and real estate consultant;
Trustee Capitol Entertainment Management Company (video
Massachusetts Financial Services Company, franchise), Vice Chairman
President, Chief Investment Officer and Director
(until February 2004) AMY B. LANE(4) (born 02/08/53)
Trustee
ROBERT C. POZEN(2)(7) (born 08/08/46) Retired; Merrill Lynch & Co., Inc., Managing
Trustee Director, Investment Banking Group (1997 to
Massachusetts Financial Services Company, Chairman February 2001); Borders Group, Inc. (book and
(since February 2004); Harvard Law School music retailer), Director; Federal Realty
(education), John Olin Visiting Professor (since Investment Trust (real estate investment trust),
July 2002); Secretary of Economic Affairs, The Trustee
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice ABBY M. O'NEILL(3) (born 04/27/28)
Chairman (June 2000 to December 2001); Fidelity Trustee
Management & Research Company (investment Private investor; Rockefeller Financial Services,
adviser), President (March 1997 to July 2001); The Inc. (investment advisers), Chairman and Chief
Bank of New York (financial services), Director; Executive Officer
Bell Canada Enterprises (telecommunications),
Director; Telesat (satellite communications), LAWRENCE T. PERERA (born 06/23/35)
Director Trustee
Hemenway & Barnes (attorneys), Partner
JEFFREY L. SHAMES(2)(6) (born 06/02/55)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Chairman Trustee
(until February 2004) Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
J. ATWOOD IVES (born 05/01/36) CBL & Associates Properties, Inc. (real estate
Co-Chair investment trust), Director
Private investor; KeySpan Corporation (energy
related services), Director; Eastern Enterprises J. DALE SHERRATT (born 09/23/38)
(diversified services company), Chairman, Trustee Trustee
and Chief Executive Officer (until November 2000) Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WARD SMITH (born 09/13/30) (investor in health care companies), Managing
Co-Chair General Partner (since 1993); Cambridge
Private investor Nutraceuticals (professional nutritional
products), Chief Executive Officer (until May
LAWRENCE H. COHN, M.D. (born 03/11/37) 2001)
Trustee
Brigham and Women's Hospital, Chief of Cardiac ELAINE R. SMITH (born 04/25/46)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Independent health care industry consultant
(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.
(3) Retired December 31, 2003.
(4) Appointed Trustee on January 27, 2004.
(5) Resigned February 6, 2004.
(6) Resigned on February 13, 2004.
(7) Appointed Trustee on February 24, 2004.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN(1) (born 09/12/59) RICHARD M. HISEY (born 08/29/58)
Trustee and President Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Senior
Executive Officer and Director (until February Vice President (since July 2002); The Bank of New
2004) York, Senior Vice President (September 2000 to
July 2002); Lexington Global Asset Managers, Inc.,
JAMES R. BORDEWICK, JR. (born 03/06/59) Executive Vice President and Chief Financial
Assistant Secretary and Assistant Clerk Officer (prior to September 2000); Lexington
Massachusetts Financial Services Company, Senior Funds, Treasurer (prior to September 2000)
Vice President and Associate General Counsel
ROBERT J. MANNING(2) (born 10/20/63)
STEPHEN E. CAVAN (born 11/06/53) President
Secretary and Clerk Massachusetts Financial Services Company, Chief
Massachusetts Financial Services Company, Senior Executive Officer, President, Chief Investment
Vice President, General Counsel and Secretary Officer and Director
STEPHANIE A. DESISTO (born 10/01/53) ELLEN MOYNIHAN (born 11/13/57)
Assistant Treasurer Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Vice
President (since April 2003); Brown Brothers President
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus JAMES O. YOST (born 06/12/60)
Investment Management, Senior Vice President Assistant Treasurer
(prior to November 2002) Massachusetts Financial Services Company, Senior
Vice President
ROBERT R. FLAHERTY (born 09/18/63)
Assistant Treasurer
Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
(1) Resigned on February 6, 2004.
(2) Appointed President on February 6, 2004.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five
years thereafter to elect Trustees. Each Trustee and officer will hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Mr. Shames has served as a Trustee of the Trust continually since originally appointed until February 13,
2004. Messrs. Cohn, Sherratt and Smith, have served in their capacity as Trustee of the Trust continuously
since originally elected or appointed. Messrs. 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. Ballen was elected by
shareholders and served as a Trustee of the Trust from January 1, 2002 until February 6, 2004, and Mr. Parke
served as a Trustee of the Trust from January 1, 2002, until February 6, 2004. Ms. O'Neill retired on December
31, 2003. Mr. Gunning and Ms. Lane have served as Trustees of the Trust since January 27, 2004, and Messrs.
Manning and Pozen have served as Trustees since February 24, 2004.
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 109 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
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
DIRECTOR OF GLOBAL EQUITY RESEARCH
David A. Antonelli
- ------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. The prospectus contains complete information on the fund's
investment objective(s), the risks associated with an investment in the fund,
the fees, charges and expenses involved, as well as other information about
the fund. The prospectus should be read carefully before investing.
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 and procedures 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 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
SCT-SEM-4/04 87M
ITEM 2. CODE OF ETHICS.
Applicable for semi-annual reports if the registrant has amended the code of
ethics during the period covered by the report or has granted a waiver,
including an implicit waiver, from a provision of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable at this time. [Applicable for periods ending on or after July 9,
2004 (beginning with Form N-CSRs filed at the end of September, 2004 for July
31, 2004 reporting period.)]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 10. 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 11. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) [**An amendment to the code of ethics, 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: Not
Applicable.
(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(b) 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 IV
By (Signature and Title)* ROBERT J. MANNING
---------------------------------
Robert J. Manning, President
Date: April 23, 2004
--------------
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)* ROBERT J. MANNING
---------------------------------
Robert J. Manning, President
(Principal Executive Officer)
Date: April 23, 2004
--------------
By (Signature and Title)* RICHARD M. HISEY
--------------------------------
Richard M. Hisey, Treasurer
(Principal Financial Officer and
Accounting Officer)
Date: April 23, 2004
--------------
* Print name and title of each signing officer under his or her signature.