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 811-7992
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MFS SERIES TRUST XI
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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: September 30
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Date of reporting period: September 30, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Mutual Funds
ANNUAL REPORT 9/30/04
MFS(R) UNION STANDARD
EQUITY 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 OR CREDIT UNION GUARANTEE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUIF
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MFS(R) UNION STANDARD EQUITY FUND
The fund seeks long-term growth of capital.
THE 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.
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) 5
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MANAGEMENT REVIEW 6
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PORTFOLIO COMPOSITION 10
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PERFORMANCE SUMMARY 11
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EXPENSE TABLE 14
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PORTFOLIO OF INVESTMENTS 16
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FINANCIAL STATEMENTS 21
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NOTES TO FINANCIAL STATEMENTS 33
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 43
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TRUSTEES AND OFFICERS 44
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MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 48
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FEDERAL TAX INFORMATION 49
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CONTACT INFORMATION BACK COVER
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LETTER FROM THE CEO
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Dear Shareholders,
[Photo of Robert J. Manning]
For most investors, the main factor in determining long-term success is asset
allocation - how they spread their money among stocks, bonds, and cash. In fact,
the total returns of investors may be more influenced by their asset allocation
strategy than by their security selection within each asset class. The principle
behind asset allocation is simple: by diversifying across a variety of types of
securities, investors reduce the overall risk of their portfolio because gains
in one area are likely to offset losses in another.
One of the dangers of not having an asset allocation plan is the temptation to
simply chase performance, by moving money into whichever asset class appears to
be outperforming at the moment. The problem with this approach is that by the
time a particular area of the market comes into favor, investors may have
already missed some of the best performance. We would suggest that one way to
benefit from swings in the market is to acquire a diversified portfolio so that
investors hold a range of asset classes before the market swings in their
direction.
UNDERSTAND YOUR EMOTIONS
It usually takes a bear market for people to appreciate the benefits of
diversification. At MFS, we believe proper asset allocation is important in all
market environments. But we understand that there are emotional components of
investment decisions that sometimes keep investors from achieving their long
term goals. The three common behaviors that negatively impact investment
decisions are overconfidence, looking backwards, and loss aversion.
o Overconfidence. After experiencing gains in the market, particularly during a
bull market, investors have a natural tendency to overestimate their own
abilities. During the global bull market of the late 1990s, for example, a
large number of investors traded their own stocks and made significant
profits. However, most of these same investors later handed back those
profits - and then some - because they focused more on short-term blips in
the market and less on the fundamental factors that affect a company's
long-term prospects.
o Looking backwards. Although security prices are determined by expectations
about the future, many investors make choices based on the recent past.
Investors who have achieved momentary success in the market tend to take on
too much risk, believing that better- than-average returns can be easily
duplicated. On the other hand, those who have had negative experiences tend
to become overly cautious and take on too little risk. Recent historical
experience tends to dictate an investor's frame of reference and may lead to
irrational decisions.
o Loss aversion. Simply put, investors would rather avoid the immediate pain of
losses than enjoy the future pleasure of gains. As a result, some investors
tend to overreact to short-term downturns in the market by seeking to
mitigate their losses, rather than remaining invested to benefit from the
long-term growth potential of the stock and bond markets.
THINK LIKE A PROFESSIONAL INVESTOR
Asset allocation helps reduce the emotional factors that tend to affect the
long-term returns of investors. Professional investors - those who manage assets
for money management firms, pension funds, and endowments - have tended to
outperform the average retirement investor because they focus on asset
allocation. For example, the investment performance of the average 401(k)
participant in the United States has lagged these professional investors by more
than two percentage points a year, on average, over the past 10 years.(1)
We think asset allocation is one of the most important decisions for investors.
A study of the performance of 91 large U.S. corporate pension plans with assets
of more than $100 million over a 10-year period beginning in 1974 concluded that
asset allocation policies accounted for 93.6% of their returns, while individual
security selection and the timing of their investments accounted for only 6.4%
for their overall performance.(2)
Professional investors target a realistic level of return based on the amount of
risk they are willing to take, then set allocations to meet their goals. On
average, U.S. professional investors allocate 35% to 40% of their assets to U.S.
equity stocks; 20% to 30% to fixed income issues; 10% to non-U.S. stocks; and
between 10% and 20% to other investment classes such as real estate.(3) And
within those categories, they hold a broad range of styles and asset classes.
In contrast, U.S. 401(k) participants who held company stock in their retirement
plans at the end of 2002 had roughly 42% of their retirement assets in company
stock while the rest was allocated to either growth or value stock funds.(4)
These participants virtually ignored the broad range of equity, fixed-income,
and non-U.S. offerings provided by their retirement plans.
ALLOCATE, DIVERSIFY, REBALANCE
We recommend working with a professional adviser to find an optimal mix of
investments based on your individual goals. In our view, a disciplined asset
allocation strategy is composed of three simple steps: allocate, diversify and
rebalance.
o Allocate. Investors should work with their financial adviser to specify their
long-term goals and tolerance for risk. Then investors should allocate their
assets across the major asset classes - stocks, bonds, and cash - to help
them pursue an investment return that is consistent with their risk tolerance
level.
o Diversify. By diversifying their assets, investors trade some performance in
the top performing categories for a more predictable and stable portfolio. At
the same time, investors should include different investment styles and
market capitalizations of stocks as well as a range of fixed income
investments. Because security subclasses tend to move in and out of favor
during various market and economic environments, a broad portfolio increases
the benefits of diversification.
o Rebalance. We suggest that investors consult with their professional advisers
periodically to rebalance their portfolios to maintain the percentages that
they have dedicated to each asset class. Allocations can shift as markets
rise and fall, making for a riskier or more conservative portfolio than an
investor originally intended. For example, a portfolio of 50% U.S. stocks and
50% U.S. bonds at the start of 2000 would have shifted to 32% U.S. stocks and
68% U.S. bonds at the end of 2002 because of the weak stock market.(5)
In short, these three simple concepts - allocate, diversify and rebalance - help
take emotion out of the investment process and help prevent investors from
trying to outguess the market. An asset allocation strategy cannot turn a down
market cycle into a good one, but it is an invaluable tool to manage risk and
keep investors on track toward reaching their long-term investment goals.
A DISCIPLINED INVESTMENT PROCESS IS PARAMOUNT
Disciplined diversification has helped investors pursue long-term, above-
average results through the years. Since 1924, when we invented the mutual fund,
MFS(R) has strived to give investors the products and tools they need to
maintain well-diversified portfolios in part by providing a variety of products
in each asset class. We recommend developing a comprehensive financial plan with
an investment advisor who is familiar with your risk tolerance, your individual
goals, and your financial situation.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 15, 2004
Asset allocation and diversification can not guarantee a profit.
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
(1) Source: Watson Wyatt
(2) "Determinants of Portfolio Performance," in Financial Analysts Journal,
January/February 1995, by Gary P. Brinson, L. Randolph Hood, and Gilbert L.
Beebower
(3) Source: Greenwich Associates
(4) Source: Hewitt Associates
(5) Source: Lipper Inc.
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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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For the 12-month period ended September 30, 2004, all of the classes, not
including sales charge, of the MFS Union Standard Equity Fund, save for Class B,
outperformed its benchmark, the Standard & Poor's 500 Stock Index (the S&P 500).
MARKET ENVIRONMENT
Relative to its benchmark, the portfolio historically has tended to have a
value tilt, placing greater emphasis on stocks selling at relatively lower
valuations, and has also tended to overweight companies in the industrial
sector. Although value stocks lagged early in the 12-month period, they
outperformed higher-valuation growth stocks for most of the period as
investors, we believe, grew less confident about future growth prospects in the
economy. In addition, industrial stocks, which we felt were more reasonably
valued, performed relatively well, especially in relation to stocks in the
technology sector, which we deemphasized. Our emphasis on value stocks and our
overweighting in industrials both helped the fund outperform the S&P 500 over
the one-year period.
FUND POSITIONING
Our sector weightings have tended to be relatively consistent over time. We
manage the fund as a core large-cap portfolio, meaning a portfolio that
represents the broad market of large-company stocks. The universe of stocks
from which we pick is derived from a list of companies that meet the fund's
basic criteria for being union- and labor-sensitive corporations. We try to
allocate at least 65% of the fund's investments to union-sensitive companies,
with the remaining investments largely in labor-sensitive companies. Because of
the criteria we use in determining if companies are either union-sensitive or
labor-sensitive, we may overweight a particular industry or company that is
part of the benchmark S&P 500. As a result, fund performance relative to the
benchmark may be positively or negatively affected.
The emphasis on union-sensitive and labor-sensitive corporations typically has
resulted in overweighted positions in some sectors, such as industrial goods
and services and utilities and communications, and underweighted positions in
other sectors, such as technology and financial services.
CONTRIBUTORS TO PERFORMANCE
In both the technology and retailing sectors, relative performance benefited
from strong stock selection and, to a lesser extent, an underweighted position.
Two investments in the technology sector were notable contributors: online
auctioneer eBay and Cree Inc, which produces semiconductor materials and
devices. Cree was not a position in our benchmark, the S&P 500. Avoiding
Wal-Mart aided relative performance in the retailing area as that company's
stock lost ground during the 12-month period. Wal-Mart does not meet the
portfolio's criteria as a union-sensitive or labor-sensitive corporation.
Strong stock selection also boosted relative results in the utilities and
communications area. TXU was the top individual performer in both the sector
and the overall fund. TXU is a Texas-based utility that benefited from a major
corporate restructuring that we believe led to an improved outlook by analysts
and a higher stock price.
An overweighted position in industrial goods and services companies contributed
to relative performance as well. Industrial companies grew increasingly
attractive to us during the period as we felt market sentiment was shifting
away from more volatile sectors such as technology. Our industrial goods and
services holdings included defense contractors as well as engine and equipment
manufacturers such as Cummins.
Individual stocks in other sectors that aided relative results included
financial services firm FleetBoston Financial, which was acquired by Bank of
America at a premium to its market price, and EON Labs, a generic
pharmaceutical firm. We sold our EON position after it appreciated
significantly during the period; EON was not held by our benchmark.
DETRACTORS FROM PERFORMANCE
In the financial services sector, stock selection and, to a smaller extent, an
underweighted position held back relative performance. The sector had performed
well in 2002 and 2003 and, in our view, had entered the period with relatively
high valuations. In addition, we felt financial services companies were
vulnerable to the risks of rising interest rates, which could cut into the
firms' profitability. These factors led us to underweight the sector.
Stock selection in the autos and housing sector also proved detrimental to
relative results.
Individual positions in other sectors that held back relative performance
included two major technology companies: semiconductor producer Intel and
software company VERITAS. Intel stock fell when the company experienced
mounting inventories during a period of soft demand, while VERITAS was a victim
of disappointing information technology spending by corporate customers. We
sold our VERITAS position before period-end. Avoiding QUALCOMM, which turned
out to be one of the best-performing technology stocks over the period, also
hurt relative results. As wireless companies gained market share among
telecommunications service providers, QUALCOMM's CDMA wireless technology
became increasingly profitable.
Several health care holdings were also key relative detractors from
performance. Pharmaceutical giant Merck & Co., a long-term holding in the fund,
fell when it withdrew its profitable Vioxx drug from the market. Our positions
in King Pharmaceuticals and Barr Pharmaceuticals, two generic drug
manufacturers, also sank in price. Barr was not a position in our benchmark,
and we sold our holding during the period. In the leisure sector, our holding
in media conglomerate Viacom suffered from advertising sales that were lower
than we had expected.
The fund'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 provide liquidity. In a period when equity markets rose strongly, holding
any cash hurt performance against its benchmark, the Standard & Poor's 500
Stock Index, which has no cash position.
Respectfully,
/s/ James Perkins
James Perkins
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 as 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.
It is not possible to invest directly in an index.
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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 Perspective for our current view of
the world.
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PORTFOLIO COMPOSITION
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PORTFOLIO STRUCTURE
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Stocks 97.7%
Cash & Other Net Assets 2.3%
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SECTOR WEIGHTINGS
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Financial Services 15.9%
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Industrial Goods & Services 14.3%
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Technology 14.0%
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Consumer Staples 9.8%
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Health Care 9.4%
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Leisure 8.6%
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Energy 7.6%
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Utilities & Communications 6.9%
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Retailing 4.3%
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Autos & Housing 2.4%
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Basic Materials 2.2%
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Transportation 1.9%
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Miscellaneous 0.4%
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TOP TEN HOLDINGS
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EXXON MOBIL CORP. 4.0%
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GENERAL ELECTRIC CO. 3.8%
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MICROSOFT CORP. 2.7%
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BANK OF AMERICA CORP. 2.6%
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JOHNSON & JOHNSON 2.5%
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J.P. MORGAN CHASE & CO. 2.3%
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PROCTER & GAMBLE CO. 2.2%
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VERIZON COMMUNICATIONS 2.0%
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INTEL CORP. 1.9%
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ALTRIA GROUP INC. 1.8%
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Percentages are based on net assets as of 9/30/04.
The portfolio is actively managed, and current holdings may be different.
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PERFORMANCE SUMMARY THROUGH 9/30/04
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The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmarks. Performance results
reflect the percentage change in net asset value, including the reinvestment of
any dividends and capital gains distributions. Benchmark comparisons are
unmanaged and do not reflect any fees or expenses. The performance of other
share classes will less than the line shown, based on differences in sales
charges and Rule 12b-1 fees paid by shareholders investing in different classes.
(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. ANY
HIGH SHORT-TERM RETURNS MAY BE AND LIKELY WERE ATTRIBUTABLE TO RECENT FAVORABLE
MARKET CONDITIONS, WHICH MAY NOT BE REPEATED. 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
MFS Union Standard Standard & Poor's
Equity Fund 500 Composite
- Class I Index
9/94 $10.000 $10,000
9/96 15,024 15,607
9/98 22,644 23,901
9/00 22,208 34,600
9/02 14,104 20,196
9/04 19,171 28,599
TOTAL RETURNS
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Average annual
without sales charge
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Class
Share class inception date 1-yr 3-yr 5-yr 10-yr
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A 8/07/97 14.64% 3.10% -4.71% 6.44%
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B 8/11/97 13.83% 2.40% -5.34% 5.98%
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C 8/11/97 13.87% 2.44% -5.33% 5.99%
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I 1/14/94 14.98% 3.46% -4.39% 6.72%
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Average annual
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Comparative benchmarks(+)
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Average large-cap core fund+ 10.19% 1.83% -2.48% 8.89%
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Standard & Poor's 500
Stock Index# 13.86% 4.04% -1.31% 11.08%
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Average annual
with sales charge
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Share class
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A 8.05% 1.08% -5.83% 5.82%
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B 9.83% 1.44% -5.67% 5.98%
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C 12.87% 2.44% -5.33% 5.99%
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I Class shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
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Cumulative
without sales charge
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Share class
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A 14.64% 9.58% -21.45% 86.72%
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B 13.83% 7.38% -24.01% 78.71%
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C 13.87% 7.51% -23.96% 78.99%
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I 14.98% 10.74% -20.11% 91.71%
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(+) Average annual rates of return.
+ 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,
(assuming redemption 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 I shares includes the
performance of the fund's Class I shares for periods prior to their offering.
This 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 to which it is
blended, and lower performance for share classes with lower operating expenses
than the initial share class to which it is blended.
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
The portfolio may invest in foreign and/or emerging markets securities which
involves risks relating to interest rates, currency exchange rates, economic,
and political conditions.
The portfolio may concentrate its investments primarily on labor sensitive
companies. By doing so, the portfolio is more susceptible to adverse economic,
political or regulatory developments affecting those companies than is a
portfolio that invests more broadly.
The portfolio's value will vary daily since its investments will fluctuate in
response to issuer, market, regulatory, economic, or political developments.
Because stocks tend to be more volatile than some other investments, such as
bonds, the more assets a fund dedicates to stocks, generally the more volatile
the portfolio's value will be. Historically, stocks have outperformed bonds over
time. The portfolio's investment risks should be considered prior to investing.
Please see the prospectus for further information regarding these and other risk
considerations.
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EXPENSE TABLE
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FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM APRIL 1, 2004,
THROUGH SEPTEMBER 30, 2004.
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on certain purchase or redemption
payments and redemption fees on certain exchanges and redemptions, and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period April 1, 2004 through September 30, 2004.
ACTUAL EXPENSES
The first line for each share class in the table below provides information
about actual account values and actual expenses. You may use the information in
this line, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the first line under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line for each share class in the table below provides information
about hypothetical account values and hypothetical expenses based on the fund's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption fees. Therefore, the second line for each share
class in the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
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Share Class
- --------------------------------------------------------------------------------
Expenses
Annualized Beginning Ending Paid During
Expense Account Value Account Value* Period**
Ratio 4/01/04 9/30/04 4/01/04-9/30/04
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Actual 1.30% $1,000 $1,016 $6.57
A ---------------------------------------------------------------------------
Hypothetical 1.30% $1,000 $1,018 $6.58
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Actual 1.94% $1,000 $1,012 $9.79
B ---------------------------------------------------------------------------
Hypothetical 1.94% $1,000 $1,015 $9.80
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Actual 1.95% $1,000 $1,012 $9.84
C ---------------------------------------------------------------------------
Hypothetical 1.95% $1,000 $1,015 $9.85
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Actual 0.95% $1,000 $1,018 $4.81
I ---------------------------------------------------------------------------
Hypothetical 0.95% $1,000 $1,020 $4.81
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* Ending account value reflects each class' ending account value assuming the
actual class return per year before expenses (Actual) and a hypothetical 5%
class return per year before expenses (Hypothetical).
** Expenses paid is equal to each class' annualized expense ratio for the most
recent six month period, as shown above, multiplied by the average account
value over the period, multiplied by the number of days in the period,
divided by the number of days in the year. Expenses paid do not include any
applicable sales charges (loads) or redemption fees. If these transaction
costs had been included, your costs would have been higher.
- -------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 9/30/04
- -------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------
Aerospace - 2.2%
- -------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 9,450 $527,121
- -------------------------------------------------------------------------------------------------
Northrop Grumman Corp. 7,100 378,643
- -------------------------------------------------------------------------------------------------
$905,764
- -------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.2%
- -------------------------------------------------------------------------------------------------
Anheuser-Busch Cos., Inc. 9,660 $482,517
- -------------------------------------------------------------------------------------------------
Automotive - 1.3%
- -------------------------------------------------------------------------------------------------
American Axle & Manufacturing Holdings, Inc. 7,510 $219,743
- -------------------------------------------------------------------------------------------------
SPX Corp. 8,490 300,546
- -------------------------------------------------------------------------------------------------
$520,289
- -------------------------------------------------------------------------------------------------
Banks & Credit Companies - 8.9%
- -------------------------------------------------------------------------------------------------
Bank of America Corp. 23,996 $1,039,747
- -------------------------------------------------------------------------------------------------
Citigroup, Inc. 16,830 742,540
- -------------------------------------------------------------------------------------------------
Countrywide Financial Corp. 11,600 456,924
- -------------------------------------------------------------------------------------------------
Fannie Mae 6,770 429,218
- -------------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co. 23,600 937,628
- -------------------------------------------------------------------------------------------------
$3,606,057
- -------------------------------------------------------------------------------------------------
Biotechnology - 0.8%
- -------------------------------------------------------------------------------------------------
Genzyme Corp.* 5,700 $310,137
- -------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 5.5%
- -------------------------------------------------------------------------------------------------
Comcast Corp., "A"* 18,453 $521,113
- -------------------------------------------------------------------------------------------------
Time Warner, Inc.* 37,870 611,222
- -------------------------------------------------------------------------------------------------
Viacom, Inc., "B" 16,547 555,317
- -------------------------------------------------------------------------------------------------
Walt Disney Co. 23,800 536,690
- -------------------------------------------------------------------------------------------------
$2,224,342
- -------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.2%
- -------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 9,510 $472,837
- -------------------------------------------------------------------------------------------------
Business Services - 0.4%
- -------------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 5,500 $148,775
- -------------------------------------------------------------------------------------------------
Chemicals - 1.1%
- -------------------------------------------------------------------------------------------------
Dow Chemical Co. 9,500 $429,210
- -------------------------------------------------------------------------------------------------
Computer Software - 3.9%
- -------------------------------------------------------------------------------------------------
Microsoft Corp. 39,220 $1,084,433
- -------------------------------------------------------------------------------------------------
Symantec Corp.* 9,000 493,920
- -------------------------------------------------------------------------------------------------
$1,578,353
- -------------------------------------------------------------------------------------------------
Computer Software - Systems - 3.0%
- -------------------------------------------------------------------------------------------------
Dell, Inc.* 19,600 $697,760
- -------------------------------------------------------------------------------------------------
Hewlett-Packard Co. 28,000 525,000
- -------------------------------------------------------------------------------------------------
$1,222,760
- -------------------------------------------------------------------------------------------------
Construction - 1.2%
- -------------------------------------------------------------------------------------------------
Masco Corp. 13,600 $469,608
- -------------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.4%
- -------------------------------------------------------------------------------------------------
Kimberly-Clark Corp. 7,340 $474,091
- -------------------------------------------------------------------------------------------------
Procter & Gamble Co. 16,760 907,051
- -------------------------------------------------------------------------------------------------
$1,381,142
- -------------------------------------------------------------------------------------------------
Electrical Equipment - 6.2%
- -------------------------------------------------------------------------------------------------
A.O. Smith Corp. 9,200 $224,020
- -------------------------------------------------------------------------------------------------
Cooper Industries Ltd., "A" 7,300 430,700
- -------------------------------------------------------------------------------------------------
Emerson Electric Co. 2,000 123,780
- -------------------------------------------------------------------------------------------------
General Electric Co. 45,270 1,520,167
- -------------------------------------------------------------------------------------------------
Rockwell Automation, Inc. 5,700 220,590
- -------------------------------------------------------------------------------------------------
$2,519,257
- -------------------------------------------------------------------------------------------------
Electronics - 4.1%
- -------------------------------------------------------------------------------------------------
Amphenol Corp., "A"* 9,600 $328,896
- -------------------------------------------------------------------------------------------------
Cree, Inc.* 10,700 326,671
- -------------------------------------------------------------------------------------------------
Intel Corp. 37,600 754,256
- -------------------------------------------------------------------------------------------------
PerkinElmer, Inc. 14,700 253,134
- -------------------------------------------------------------------------------------------------
$1,662,957
- -------------------------------------------------------------------------------------------------
Energy - Independent - 1.2%
- -------------------------------------------------------------------------------------------------
Marathon Oil Corp. 12,110 $499,901
- -------------------------------------------------------------------------------------------------
Energy - Integrated - 6.3%
- -------------------------------------------------------------------------------------------------
ChevronTexaco Corp. 7,400 $396,936
- -------------------------------------------------------------------------------------------------
ConocoPhillips 6,500 538,525
- -------------------------------------------------------------------------------------------------
Exxon Mobil Corp. 33,632 1,625,434
- -------------------------------------------------------------------------------------------------
$2,560,895
- -------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.1%
- -------------------------------------------------------------------------------------------------
CVS Corp. 10,540 $444,050
- -------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 3.3%
- -------------------------------------------------------------------------------------------------
Archer Daniels Midland Co. 26,000 $441,480
- -------------------------------------------------------------------------------------------------
Coca-Cola Enterprises, Inc. 11,680 220,752
- -------------------------------------------------------------------------------------------------
PepsiCo, Inc. 14,100 685,965
- -------------------------------------------------------------------------------------------------
$1,348,197
- -------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.8%
- -------------------------------------------------------------------------------------------------
Boyd Gaming Corp. 10,800 $304,020
- -------------------------------------------------------------------------------------------------
General Merchandise - 2.7%
- -------------------------------------------------------------------------------------------------
Costco Wholesale Corp. 9,700 $403,132
- -------------------------------------------------------------------------------------------------
Federated Department Stores, Inc. 6,500 295,295
- -------------------------------------------------------------------------------------------------
J.C. Penney Co., Inc. 11,700 412,776
- -------------------------------------------------------------------------------------------------
$1,111,203
- -------------------------------------------------------------------------------------------------
Insurance - 5.9%
- -------------------------------------------------------------------------------------------------
Everest Re Group Ltd. 3,200 $237,856
- -------------------------------------------------------------------------------------------------
Genworth Financial, Inc. 12,800 298,240
- -------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. 5,900 365,387
- -------------------------------------------------------------------------------------------------
MetLife, Inc. 13,200 510,180
- -------------------------------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. 9,400 310,764
- -------------------------------------------------------------------------------------------------
UNUMProvident Corp. 26,100 409,509
- -------------------------------------------------------------------------------------------------
XL Capital Ltd., "A" 3,200 236,768
- -------------------------------------------------------------------------------------------------
$2,368,704
- -------------------------------------------------------------------------------------------------
Internet - 1.6%
- -------------------------------------------------------------------------------------------------
eBay, Inc.* 7,000 $643,580
- -------------------------------------------------------------------------------------------------
Machinery & Tools - 5.8%
- -------------------------------------------------------------------------------------------------
Caterpillar, Inc. 6,600 $530,970
- -------------------------------------------------------------------------------------------------
Cummins, Inc. 5,900 435,951
- -------------------------------------------------------------------------------------------------
Deere & Co. 7,100 458,305
- -------------------------------------------------------------------------------------------------
Harsco Corp. 6,800 305,320
- -------------------------------------------------------------------------------------------------
PACCAR, Inc. 4,700 324,864
- -------------------------------------------------------------------------------------------------
Timken Co. 11,900 292,978
- -------------------------------------------------------------------------------------------------
$2,348,388
- -------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.1%
- -------------------------------------------------------------------------------------------------
HCA, Inc. 12,000 $457,800
- -------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.5%
- -------------------------------------------------------------------------------------------------
Eli Lilly & Co. 5,330 $320,066
- -------------------------------------------------------------------------------------------------
Johnson & Johnson 17,710 997,604
- -------------------------------------------------------------------------------------------------
King Pharmaceuticals, Inc.* 16,100 192,234
- -------------------------------------------------------------------------------------------------
Merck & Co., Inc. 15,990 527,670
- -------------------------------------------------------------------------------------------------
Pfizer, Inc. 13,262 405,817
- -------------------------------------------------------------------------------------------------
Wyeth 16,060 600,644
- -------------------------------------------------------------------------------------------------
$3,044,035
- -------------------------------------------------------------------------------------------------
Printing & Publishing - 0.8%
- -------------------------------------------------------------------------------------------------
Banta Corp. 4,000 $159,000
- -------------------------------------------------------------------------------------------------
Meredith Corp. 3,000 154,140
- -------------------------------------------------------------------------------------------------
$313,140
- -------------------------------------------------------------------------------------------------
Railroad & Shipping - 1.9%
- -------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 11,780 $451,292
- -------------------------------------------------------------------------------------------------
Norfolk Southern Corp. 11,320 336,657
- -------------------------------------------------------------------------------------------------
$787,949
- -------------------------------------------------------------------------------------------------
Restaurants - 1.6%
- -------------------------------------------------------------------------------------------------
ARAMARK Corp., "B" 11,000 $265,540
- -------------------------------------------------------------------------------------------------
YUM! Brands, Inc. 9,030 367,160
- -------------------------------------------------------------------------------------------------
$632,700
- -------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.1%
- -------------------------------------------------------------------------------------------------
Praxair, Inc. 10,800 $461,592
- -------------------------------------------------------------------------------------------------
Specialty Stores - 0.5%
- -------------------------------------------------------------------------------------------------
TJX Cos., Inc. 8,700 $191,748
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.3%
- -------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 20,760 $375,756
- -------------------------------------------------------------------------------------------------
Motorola, Inc. 9,300 167,772
- -------------------------------------------------------------------------------------------------
$543,528
- -------------------------------------------------------------------------------------------------
Telephone Services - 4.4%
- -------------------------------------------------------------------------------------------------
BellSouth Corp. 19,900 $539,688
- -------------------------------------------------------------------------------------------------
SBC Communications, Inc. 15,950 413,902
- -------------------------------------------------------------------------------------------------
Verizon Communications, Inc. 20,840 820,679
- -------------------------------------------------------------------------------------------------
$1,774,269
- -------------------------------------------------------------------------------------------------
Tobacco - 1.8%
- -------------------------------------------------------------------------------------------------
Altria Group, Inc. 15,880 $746,995
- -------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.6%
- -------------------------------------------------------------------------------------------------
CMS Energy Corp.* 37,000 $352,240
- -------------------------------------------------------------------------------------------------
PPL Corp. 4,420 208,536
- -------------------------------------------------------------------------------------------------
TXU Corp. 10,000 479,200
- -------------------------------------------------------------------------------------------------
$1,039,976
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $34,037,393) $39,556,675
- -------------------------------------------------------------------------------------------------
Short-Term Obligation - 2.2%
- -------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -------------------------------------------------------------------------------------------------
Citicorp, Inc., 1.88%, due 10/01/04, at Amortized Cost $869,000 $869,000
- -------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $34,906,393) $40,425,675
- -------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.1% 56,092
- -------------------------------------------------------------------------------------------------
Net Assets - 100.0% $40,481,767
- -------------------------------------------------------------------------------------------------
*Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 9/30/04
ASSETS
Investments, at value (identified cost, $34,906,393) $40,425,675
- -----------------------------------------------------------------------------------------------------
Cash 12,486
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 101,069
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 17,622
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 52,874
- -----------------------------------------------------------------------------------------------------
Other assets 576
- -----------------------------------------------------------------------------------------------------
Total assets $40,610,302
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $101,866
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 25,441
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 736
- -----------------------------------------------------------------------------------------------------
Reimbursement fee 337
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 155
- -----------------------------------------------------------------------------------------------------
Total liabilities $128,535
- -----------------------------------------------------------------------------------------------------
Net assets $40,481,767
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $47,645,621
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments 5,519,282
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (12,978,127)
- -----------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income 294,991
- -----------------------------------------------------------------------------------------------------
Net assets $40,481,767
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 3,726,759
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
Net assets $7,896,285
- -----------------------------------------------------------------------------------------------------
Shares outstanding 729,958
- -----------------------------------------------------------------------------------------------------
Net asset value per share $10.82
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$10.82) $11.48
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $2,233,803
- -----------------------------------------------------------------------------------------------------
Shares outstanding 210,338
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.62
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $658,537
- -----------------------------------------------------------------------------------------------------
Shares outstanding 62,168
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.59
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $29,693,142
- -----------------------------------------------------------------------------------------------------
Shares outstanding 2,724,295
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $10.90
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred sales
charge may be imposed on redemptions of Class A, Class B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
FOR YEAR ENDED 9/30/04
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------
Dividends $709,648
- -----------------------------------------------------------------------------------------------------
Interest 13,043
- -----------------------------------------------------------------------------------------------------
Total investment income $722,691
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $255,254
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 1,437
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 52,477
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 26,555
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 22,507
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 5,606
- -----------------------------------------------------------------------------------------------------
Administrative fee 3,433
- -----------------------------------------------------------------------------------------------------
Custodian fee 14,438
- -----------------------------------------------------------------------------------------------------
Printing 34,993
- -----------------------------------------------------------------------------------------------------
Postage 1,726
- -----------------------------------------------------------------------------------------------------
Auditing fees 36,890
- -----------------------------------------------------------------------------------------------------
Legal fees 4,156
- -----------------------------------------------------------------------------------------------------
Registration fees 40,131
- -----------------------------------------------------------------------------------------------------
Miscellaneous 15,195
- -----------------------------------------------------------------------------------------------------
Total expenses $514,798
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (309)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (86,839)
- -----------------------------------------------------------------------------------------------------
Net expenses $427,650
- -----------------------------------------------------------------------------------------------------
Net investment income $295,041
- -----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain (identified cost basis) on investment
transactions $2,663,976
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation on investments $2,245,189
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $4,909,165
- -----------------------------------------------------------------------------------------------------
Change in net assets from operations $5,204,206
- -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting
from operations, any distributions, and any shareholder transactions.
FOR YEARS ENDED 9/30 2004 2003
CHANGE IN NET ASSETS
OPERATIONS
Net investment income $295,041 $270,061
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 2,663,976 (4,343,307)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments 2,245,189 9,796,514
- -------------------------------------------------------------- ----------- ------------
Change in net assets from operations $5,204,206 $5,723,268
- -------------------------------------------------------------- ----------- ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -------------------------------------------------------------------------------------------------------
Class A $(39,787) $(19,271)
- -----------------------------------------------------------------------------------------------------
Class I (230,276) (232,132)
- -------------------------------------------------------------- ----------- ------------
Total distributions declared to shareholders $(270,063) $(251,403)
- -------------------------------------------------------------- ----------- ------------
Change in net assets from fund share transactions $556,634 $(7,241,503)
- -------------------------------------------------------------- ----------- ------------
Total change in net assets $5,490,777 $(1,769,638)
- -------------------------------------------------------------- ----------- ------------
NET ASSETS
At beginning of period $34,990,990 $36,760,628
- -------------------------------------------------------------------------------------------------------
At end of period (including accumulated undistributed
net investment income of $294,991 and $270,013,
respectively) $40,481,767 $34,990,990
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years.
Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by
which an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of all distributions) held
for the entire period. This information has been audited by the fund's independent registered public accounting firm, whose
report, together with the fund's financial statements, are included in this report.
YEARS ENDED 9/30
------------------------------------------------------------------------------------
CLASS A 2004 2003 2002 2001 2000
Net asset value, beginning of period $9.49 $8.09 $9.98 $12.91 $16.33
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.06 $0.05 $0.03 $0.02 $0.07
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss)
on investments and foreign currency 1.33 1.38 (1.90) (2.88) (1.12)
- --------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $1.39 $1.43 $(1.87) $(2.86) $(1.05)
- --------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.06) $(0.03) $(0.02) $(0.07) $(0.09)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments
and foreign currency transactions -- -- -- -- (2.26)
- -----------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- (0.02)
- --------------------------------------------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.06) $(0.03) $(0.02) $(0.07) $(2.37)
- --------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $10.82 $9.49 $8.09 $9.98 $12.91
- --------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 14.64 17.66^ (18.76) (22.27) (7.77)
- -----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
YEARS ENDED 9/30
------------------------------------------------------------------------------------
CLASS A (CONTINUED) 2004 2003 2002 2001 2000
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.30 1.26 1.20 1.22 1.22
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.54 0.57 0.30 0.18 0.48
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 59 48 69 86
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $7,896 $6,634 $5,872 $9,493 $10,066
- -----------------------------------------------------------------------------------------------------------------------------
(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 0.30% 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 0.30% of
average daily net assets. Prior to February 1, 2003 the fund paid the investment adviser a reimbursement fee not greater
than 0.20% of average daily net assets. To the extent that the expense reimbursement fee exceeds the fund's actual
expenses, the excess will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will
terminate on the earlier of January 31, 2005 or such date as all expenses previously borne by MFS under the current
agreement have been paid by the fund. For the year ended September 30, 2004, the investment adviser has voluntarily agreed
to reimburse the fund for its proportional share of Independent Chief Compliance Officer service fees paid to Tarantino
LLC. To the extent actual expenses were over this limitation, and the reimbursement had not been in place, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.03 $0.02 $0.01 $(0.01) $0.05
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.52 1.57 1.44 1.47 1.36
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.32 0.26 0.06 (0.07) 0.34
- -----------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ The fund's net asset value and total return calculation include proceeds received on March 26, 2003 for the partial payment
of a non-recurring litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions.
The proceeds resulted in an increase in the net asset value of $0.06 per share based on shares outstanding on the day the
proceeds were received. Excluding the effect of this payment from the ending net asset value per share, total return for
the year ended September 30, 2003 would have been 0.73% lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEARS ENDED 9/30
------------------------------------------------------------------------------
CLASS B 2004 2003 2002 2001 2000
Net asset value, beginning of period $9.33 $7.98 $9.89 $12.82 $16.23
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01) $(0.01) $(0.03) $(0.05) $(0.02)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 1.30 1.36 (1.88) (2.87) (1.11)
- --------------------------------------------- ---------- ------ ------ ------ ------
Total from investment operations $1.29 $1.35 $(1.91) $(2.92) $(1.13)
- --------------------------------------------- ---------- ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $-- $-- $-- $(0.01) $--
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- -- -- (2.26)
- -----------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- (0.02)
- --------------------------------------------- ---------- ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.01) $(2.28)
- --------------------------------------------- ---------- ------ ------ ------ ------
Net asset value, end of period $10.62 $9.33 $7.98 $9.89 $12.82
- --------------------------------------------- ---------- ------ ------ ------ ------
Total return (%) 13.83 16.92^ (19.31) (22.77) (8.37)
- -----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
YEARS ENDED 9/30
------------------------------------------------------------------------------
CLASS B (CONTINUED) 2004 2003 2002 2001 2000
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.95 1.90 1.85 1.87 1.87
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.11) (0.08) (0.34) (0.46) (0.14)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 59 48 69 86
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $2,234 $2,082 $2,534 $3,211 $2,356
- -----------------------------------------------------------------------------------------------------------------------------
(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 0.30% 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 0.30% of
average daily net assets. Prior to February 1, 2003 the fund paid the investment adviser a reimbursement fee not greater
than 0.20% of average daily net assets. To the extent that the expense reimbursement fee exceeds the fund's actual
expenses, the excess will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will
terminate on the earlier of January 31, 2005 or such date as all expenses previously borne by MFS under the current
agreement have been paid by the fund. For the year ended September 30, 2004, the investment adviser has voluntarily agreed
to reimburse the fund for its proportional share of Independent Chief Compliance Officer service fees paid to Tarantino
LLC. To the extent actual expenses were over this limitation, and the reimbursement had not been in place, the net
investment loss per share and the ratios would have been:
Net investment loss $(0.03) $(0.03) $(0.06) $(0.08) $(0.04)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.17 2.21 2.09 2.12 2.01
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.33) (0.39) (0.58) (0.71) (0.28)
- -----------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ The fund's net asset value and total return calculation include proceeds received on March 26, 2003 for the partial payment
of a non-recurring litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions.
The proceeds resulted in an increase in the net asset value of $0.06 per share based on shares outstanding on the day the
proceeds were received. Excluding the effect of this payment from the ending net asset value per share, total return for
the year ended September 30, 2003 would have been 0.74% lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEARS ENDED 9/30
------------------------------------------------------------------------------
CLASS C 2004 2003 2002 2001 2000
Net asset value, beginning of period $9.30 $7.95 $9.85 $12.76 $16.21
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01) $(0.01) $(0.03) $(0.05) $(0.02)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 1.30 1.36 (1.87) (2.86) (1.11)
- --------------------------------------------- ---------- ------ ------ ------ ------
Total from investment operations $1.29 $1.35 $(1.90) $(2.91) $(1.13)
- --------------------------------------------- ---------- ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $-- $-- $-- $-- $(0.04)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- -- -- (2.26)
- -----------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- (0.02)
- --------------------------------------------- ---------- ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $-- $(2.32)
- --------------------------------------------- ---------- ------ ------ ------ ------
Net asset value, end of period $10.59 $9.30 $7.95 $9.85 $12.76
- --------------------------------------------- ---------- ------ ------ ------ ------
Total return (%) 13.87 16.98^ (19.29) (22.81) (8.38)
- -----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
YEARS ENDED 9/30
------------------------------------------------------------------------------
CLASS C (CONTINUED) 2004 2003 2002 2001 2000
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.95 1.89 1.85 1.87 1.87
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.11) (0.07) (0.34) (0.47) (0.14)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 59 48 69 86
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $659 $466 $697 $1,088 $957
- -----------------------------------------------------------------------------------------------------------------------------
(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 0.30% 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 0.30% of
average daily net assets. Prior to February 1, 2003 the fund paid the investment adviser a reimbursement fee not greater
than 0.20% of average daily net assets. To the extent that the expense reimbursement fee exceeds the fund's actual
expenses, the excess will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will
terminate on the earlier of January 31, 2005 or such date as all expenses previously borne by MFS under the current
agreement have been paid by the fund. For the year ended September 30, 2004, the investment adviser has voluntarily agreed
to reimburse the fund for its proportional share of Independent Chief Compliance Officer service fees paid to Tarantino
LLC. To the extent actual expenses were over this limitation, and the reimbursement had not been in place, the net
investment loss per share and the ratios would have been:
Net investment loss $(0.03) $(0.03) $(0.06) $(0.08) $(0.04)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.17 2.20 2.09 2.12 2.01
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.33) (0.38) (0.58) (0.72) (0.28)
- -----------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ The fund's net asset value and total return calculation include proceeds received on March 26, 2003 for the partial payment
of a non-recurring litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions.
The proceeds resulted in an increase in the net asset value of $0.06 per share based on shares outstanding on the day the
proceeds were received. Excluding the effect of this payment from the ending net asset value per share, total return for
the year ended September 30, 2003 would have been 0.74% lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEARS ENDED 9/30
------------------------------------------------------------------------------
CLASS I 2004 2003 2002 2001 2000
Net asset value, beginning of period $9.56 $8.15 $10.06 $13.03 $16.47
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.09 $0.08 $0.07 $0.06 $0.12
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 1.34 1.40 (1.92) (2.91) (1.13)
- --------------------------------------------- ---------- ------ ------ ------ ------
Total from investment operations $1.43 $1.48 $(1.85) $(2.85) $(1.01)
- --------------------------------------------- ---------- ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.09) $(0.07) $(0.06) $(0.12) $(0.15)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- -- -- (2.26)
- -----------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- (0.02)
- --------------------------------------------- ---------- ------ ------ ------ ------
Total distributions declared to
shareholders $(0.09) $(0.07) $(0.06) $(0.12) $(2.43)
- --------------------------------------------- ---------- ------ ------ ------ ------
Net asset value, end of period $10.90 $9.56 $8.15 $10.06 $13.03
- --------------------------------------------- ---------- ------ ------ ------ ------
Total return (%) 14.98 18.22^ (18.53) (22.05) (7.45)
- -----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
YEARS ENDED 9/30
------------------------------------------------------------------------------
CLASS I (CONTINUED) 2004 2003 2002 2001 2000
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.95 0.91 0.85 0.87 0.87
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.89 0.92 0.65 0.52 0.84
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 59 48 69 86
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $29,693 $25,809 $27,658 $38,108 $55,327
- -----------------------------------------------------------------------------------------------------------------------------
(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 0.30% 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 0.30% of average daily net assets. Prior
to February 1, 2003 the fund paid the investment adviser a reimbursement fee not greater than 0.20% of average daily net
assets. To the extent that the expense reimbursement fee exceeds the fund's actual expenses, the excess will be applied to
unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate on the earlier of January 31,
2005 or such date as all expenses previously borne by MFS under the current agreement have been paid by the fund. For the
year ended September 30, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional
share of Independent Chief Compliance Officer service fees paid to Tarantino LLC. To the extent actual expenses were over
this limitation, and the reimbursement had not been in place, the net investment income per share and the ratios would have
been:
Net investment income $0.07 $0.05 $0.04 $0.03 $0.10
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.17 1.22 1.09 1.12 1.01
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.67 0.61 0.41 0.27 0.70
- -----------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ The fund's net asset value and total return calculation include proceeds received on March 26, 2003 for the partial payment
of a non-recurring litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions.
The proceeds resulted in an increase in the net asset value of $0.06 per share based on shares outstanding on the day the
proceeds were received. Excluding the effect of this payment from the ending net asset value per share, total return for
the year ended September 30, 2003 would have been 0.72% lower.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Union Standard Equity Fund (the fund) is a diversified series of MFS Series
Trust XI (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 U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund can
invest in foreign securities. Investments in foreign securities are vulnerable
to the effects of changes in the relative values of the local currency and the
U.S. dollar and to the effects of changes in each country's legal, political,
and economic environment.
INVESTMENT VALUATIONS - Equity securities 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. 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. When
pricing service information or market quotations are not readily available,
securities are priced at fair value as determined under the direction of the
Board of Trustees. 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 quotations 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.
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.
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. At September 30, 2004, there were no securities on
loan.
SHORT TERM FEES - For purchases made on or after July 1, 2004, the fund will
charge a 2% redemption fee (which is retained by the fund) on proceeds from
Class A, Class B, Class C, and Class I shares redeemed or exchanged within 5
business days following their acquisition (either by purchase or exchange). The
fund may change the redemption fee period in the future, including changes in
connection with pending Securities and Exchange Commission rules. See the fund's
prospectus for details. 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 U.S. generally accepted accounting principles. All discount is accreted for
tax reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date.
The fund was a participant in a class-action lawsuit against Cendant
Corporation. On March 26, 2003 the fund received a partial cash settlement in
the amount of $212,497, recorded as a realized gain on investment transactions.
The partial proceeds from the non-recurring litigation settlement resulted in an
increase in net asset value of $0.06 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
September 30, 2003 would have been lower by 0.73%, 0.74%, 0.74%, and 0.72% for
Class A, B, C, and I shares, 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 year ended September 30, 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 capital losses.
The tax character of distributions declared for the years ended September 30,
2004 and September 30, 2003 was as follows:
9/30/04 9/30/03
Distributions declared from:
- ---------------------------------------------------------------
Ordinary income $270,063 $251,403
- ---------------------------------------------------------------
During the year ended September 30, 2004, there were no reclassifications due to
differences between book and tax accounting.
As of September 30, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $294,991
----------------------------------------------------------
Capital loss carryforward (12,961,318)
----------------------------------------------------------
Unrealized appreciation 5,502,473
----------------------------------------------------------
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
September 30, 2008 $(551,829)
----------------------------------------------------------
September 30, 2009 --
----------------------------------------------------------
September 30, 2010 (6,234,544)
----------------------------------------------------------
September 30, 2011 (5,556,028)
----------------------------------------------------------
September 30, 2012 (618,917)
----------------------------------------------------------
Total $(12,961,318)
----------------------------------------------------------
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 ADVISOR - 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 0.65% 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 0.30% 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 a reimbursement fee not greater
than 0.30% of average daily net assets for Class A, Class B, Class C, and Class
I shares. 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
January 31, 2005 or such date as all expenses previously borne by MFS under the
current agreement have been paid by the fund. At September 30, 2004, aggregate
unreimbursed expenses amounted to $66,276. The fund will not be required to
reimburse MFS the $128,074 for expenses borne under a previous agreement that
expired on January 31, 2004.
The fund pays compensation to its Independent Trustees in the form of a
retainer, attendance fees, and additional compensation to Board and Committee
chairpersons, 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).
This fund and certain other MFS funds have entered into a services agreement
(the "Agreement") which provides for payment of fees by the funds to Tarantino
LLC in return for the provision of services of an Independent Chief Compliance
Officer (ICCO) for the funds. The ICCO is an officer of the funds and the sole
member of Tarantino LLC. MFS has agreed to reimburse each of the funds for a
proportional share of substantially all of the payments made by the funds to
Tarantino LLC and also to provide office space and other administrative support
and supplies to the ICCO. The funds can terminate the Agreement with Tarantino
LLC at any time under the terms of the Agreement.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment advisor. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement of
the costs MFS incurs to provide these services, subject to review and approval
by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior to
April 1, 2004, the fund paid 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%
----------------------------------------------------------
Effective April 1, 2004, the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------------------
In excess of $7 billion 0.00000%
----------------------------------------------------------
For the year ended September 30, 2004, the fund paid MFS $3,433, equivalent to
0.0087% of average daily net assets, to partially reimburse MFS for the costs of
providing administrative services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$3,865 for the year ended September 30, 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. 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
Distribution Fee 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00%
- --------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the year
ended September 30, 2004 amounted to:
CLASS A CLASS B CLASS C
Service Fee Retained by MFD $2,257 $16 $3
- --------------------------------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales charge in the event of a
shareholder redemption within, for Class A shares, 12 months following the purchase, and, for Class C
shares, the first year from the end of the calendar month of purchase. A contingent deferred sales charge
is imposed on shareholder redemptions of Class B shares in the event of a shareholder redemption within
six years from the end of the calendar month of purchase. MFD receives all contingent deferred sales
charges. Contingent deferred sales charges imposed during the year ended September 30, 2004 were as
follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $14 $6,843 $41
- --------------------------------------------------------------------------------------------------------
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, which is calculated as a percentage of the fund's
average daily net assets is set periodically under the supervision of the fund's
Trustees. Prior to April 1, 2004, the fee was set at 0.11% of the fund's average
daily net assets. For the period April 1, 2004 through June 30, 2004, the fee
was set at 0.10% of the fund's average daily net assets. Effective July 1, 2004,
the fund is charged up to 0.0861% of its average daily net assets. For the year
ended September 30, 2004, the fund paid MFSC a fee of $39,490 for shareholder
services which equated to 0.1006% of the fund's average daily net assets. Also
included in shareholder servicing costs are out-of-pocket expenses, paid to
MFSC, which amounted to $4,114 for the year ended September 30, 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
$23,241,435 and $22,265,673, 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 $34,923,202
----------------------------------------------------------
Gross unrealized appreciation $7,367,388
----------------------------------------------------------
Gross unrealized depreciation (1,864,915)
----------------------------------------------------------
Net unrealized appreciation $5,502,473
----------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 9/30/04 Year ended 9/30/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 213,353 $2,233,782 313,026 $2,783,570
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders
in reinvestment of distributions 3,811 38,452 2,153 18,692
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (186,115) (1,959,847) (342,322) (3,023,243)
- ----------------------------------------------------------------------------------------------------------
Net change 31,049 $312,387 (27,143) $(220,981)
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 31,750 $329,460 124,083 $1,104,004
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (44,606) (458,733) (218,658) (1,780,263)
- ----------------------------------------------------------------------------------------------------------
Net change (12,856) $(129,273) (94,575) $(676,259)
- ----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 24,913 $258,228 14,261 $131,893
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (12,834) (132,873) (51,855) (412,125)
- ----------------------------------------------------------------------------------------------------------
Net change 12,079 $125,355 (37,594) $(280,232)
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 4,903 $53,372 4,761 $44,332
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders
in reinvestment of distributions 22,710 230,276 26,621 232,131
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (3,304) (35,483) (722,966) (6,340,494)
- ----------------------------------------------------------------------------------------------------------
Net change 24,309 $248,165 (691,584) $(6,064,031)
- ----------------------------------------------------------------------------------------------------------
(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 Federal
Reserve funds 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 year ended September 30, 2004 was $197, and is
included in miscellaneous expense. The fund had no significant borrowings during
the year ended September 30, 2004.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with MFS fund sales (the term "MFS funds" means the
open-end registered management investment companies sponsored by MFS). 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 developed by an independent
distribution consultant. The brokerage allocation practices which were the
subject of this proceeding were discontinued by MFS in November 2003. The
agreement with the SEC is reflected in an order of the SEC. Pursuant to the SEC
order, on July 28, 2004, MFS transferred these settlement amounts to the SEC,
and those MFS funds entitled to these settlement amounts accrued an estimate of
their pro rata portion of these amounts. Once the final distribution plan is
approved by the SEC, these amounts will be distributed by the SEC to the
affected MFS funds. The SEC 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 SEC settlement order states that MFS had in place
policies designed to obtain best execution of all MFS fund trades. As part of
the settlement, MFS retained an independent compliance consultant to review the
completeness of its current policies and practices regarding disclosure to MFS
fund trustees and to MFS fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of MFS fund shares.
In addition, in February, 2004, MFS reached agreement with the 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 retail fund prospectuses regarding market
timing and related matters (the "February Settlements"). These regulators
alleged that prospectus language for certain MFS retail funds was false and
misleading because, although the prospectuses for those funds in the regulators'
view indicated that the MFS 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, also reached agreement with the SEC in which they
agreed to, among other terms, monetary fines and temporary suspensions from
association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. 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 MFS 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 Board of
Trustees of the MFS retail funds, and acceptable to the SEC. MFS has further
agreed with 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 retained $250,000 and $750,000 was contributed to the
North American Securities Administrators Association's Investor Protection
Trust). In addition, under the terms of the February Settlements, MFS is in the
process of adopting certain governance changes and reviewing its policies and
procedures.
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 MFS 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 relating to market timing and related matters have been transferred
to, and consolidated before, the United States District Court for the District
of Maryland, as part of a multi-district litigation of market timing and related
claims involving several other fund complexes (In re Mutual Funds Investment
Litigation (Alger, Columbia, Janus, MFS, One Group, Putnam, PIMCO), No.
1:04-md-15863 (transfer began March 19, 2004)). Four lawsuits alleging improper
brokerage allocation practices and excessive compensation are pending in the
United States District Court for the District of Massachusetts (Forsythe v. Sun
Life Financial Inc., et al., No. 04cv10584 (GAO) (March 25, 2004); Eddings v.
Sun Life Financial Inc., et al., No. 04cv10764 (GAO) (April 15, 2004); Marcus
Dumond, et al. v. Massachusetts Financial Servs. Co., et al., No. 04cv11458
(GAO) (May 4, 2004); and Koslow v. Sun Life Financial Inc., et al., No.
04cv11019 (GAO) (May 20, 2004)). 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 funds, or (ii) permitted or acquiesced in the improper
use of fund assets by MFS to support the distribution of MFS 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 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 MFS 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 MFS retail funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the MFS
retail funds, and transferred $50 million for distribution to affected MFS funds
to compensate those funds based upon the amount of brokerage commissions
allocated in recognition of MFS 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 MFS 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 MFS funds.
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust XI and Shareholders of MFS Union Standard
Equity Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the MFS Union Standard Equity Fund (the "Fund")
(a portfolio of MFS Series Trust XI) as of September 30, 2004, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
September 30, 2004 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Union Standard Equity Fund as of September 30, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 23, 2004
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TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- ------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust, as of November 10, 2004, are listed
below, together with their principal occupations during the past five years.
(Their titles may have varied during that period.) The address of each Trustee
and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial
(born 10/20/63) President Services Company, Chief
Executive Officer, President,
Chief Investment Officer and
Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School
(education), John Olin Visiting
Professor (since July 2002);
Secretary of Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December 2002);
Fidelity Investments, Vice Chairman
(June 2000 to December 2001);
Fidelity Management & Research
Company (investment adviser),
President (March 1997 to July
2001); The Bank of New York
(financial services), Director;
Bell Canada Enterprises
(telecommunications), Director;
Telesat (satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair of February 1992 Private investor; Eastern
(born 05/01/36) Trustees Enterprises (diversified
services company), Chairman,
Trustee and Chief Executive
Officer (until November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery;
Harvard Medical School,
Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/ Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director; Southwest Gas Corporation
(natural gas distribution company),
Director
William R. Gutow Trustee December 1993 Private investor and real
(born 09/27/41) estate consultant; Capitol
Entertainment Management
Company (video franchise),
Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group
(1997 to February 2001);
Borders Group, Inc. (book and
music retailer), Director;
Federal Realty Investment
Trust (real estate investment
trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes
(born 06/23/35) (attorneys), Partner
William J. Poorvu Trustee August 1982 Private investor; Harvard
(born 04/10/35) University Graduate School of
Business Administration,
Class of 1961 Adjunct
Professor in Entrepreneurship
Emeritus; CBL & Associates
Properties, Inc. (real estate
investment trust), Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning specialists),
President; Wellfleet Investments
(investor in health care
companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care
(born 04/25/46) industry consultant
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial
(born 10/20/63) Trustee Services Company, Chief
Executive Officer, President,
Chief Investment Officer and
Director
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial
(born 03/06/59) and Assistant Clerk Services Company, Senior Vice
President and Associate
General Counsel
Jeffrey N. Carp(3) Secretary and Clerk September 2004 Massachusetts Financial
(born 12/01/56) Services Company, Senior Vice
President, General Counsel and
Secretary (since April 2004); Hale
and Dorr LLP (law firm) (prior to
April 2004)
James F. DesMarais(3) Assistant Secretary September 2004 Massachusetts Financial
(born 03/09/61) and Assistant Clerk Services Company, Assistant
General Counsel
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial
(born 10/01/53) Services Company, Vice
President (since April 2003);
Brown Brothers Harriman &
Co., Senior Vice President
(November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior
Vice President (prior to
November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial
(born 09/18/63) Services Company, Vice
President (since August
2000); UAM Fund Services,
Senior Vice President (prior
to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial
(born 08/29/58) Services Company, Senior Vice
President (since July 2002); The
Bank of New York, Senior Vice
President (September 2000 to July
2002); Lexington Global Asset
Managers, Inc., Executive Vice
President and Chief Financial
Officer (prior to September 2000);
Lexington Funds, Chief Financial
Officer (prior to September 2000)
Brian T. Hourihan(3) Assistant Secretary September 2004 Massachusetts Financial
(born 11/11/64) and Assistant Clerk Services Company, Vice
President, Senior Counsel and
Assistant Secretary (since
June 2004); Affiliated
Managers Group, Inc., Chief
Legal Officer/Centralized
Compliance Program (January
to April 2004); Fidelity
Research & Management
Company, Assistant General
Counsel (prior to January
2004)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial
(born 11/13/57) Services Company, Vice
President
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance Officer compliance services),
Principal (since June 2004);
CRA Business Strategies Group
(consulting services),
Executive Vice President
(April 2003 to June 2004);
David L. Babson & Co.
(investment adviser),
Managing Director, Chief
Administrative Officer and
Director (February 1997 to
March 2003)
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial
(born 06/12/60) Services Company, Senior Vice
President
- ----------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as
the 1940 Act), which is the principle federal law governing investment companies like the fund. The
address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
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 holds office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal.
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 99 funds within the MFS Family of
Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -----------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Deloitte & Touche LLP
500 Boylston Street, Boston, MA 02116-3741 200 Berkeley Street, Boston, MA 02116
PORTFOLIO MANAGER
James Perkins
QUARTERLY PORTFOLIO DISCLOSURE
Beginning with the fund's first and third fiscal quarters following this report, the fund will file a
complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for
the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed and
copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. The fund's Form N-Q is available on the EDGAR database on the Commission's Internet
website at http://www.sec.gov, and copies of this information may be obtained, upon payment of a
duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing
the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at mfs.com.
- -------------------------------------------------------------------------------
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 investments 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
Variable annuities are offered through MFS/Sun Life Financial Distributors, Inc.
A PROSPECTUS FOR ANY MFS PRODUCT CAN BE OBTAINED FROM YOUR INVESTMENT
PROFESSIONAL. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE INVESTING AS IT
CONTAINS COMPLETE INFORMATION ON THE FUND'S INVESTMENT OBJECTIVE(s), THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THE FUND, AND THE FEES, CHARGES, AND EXPENSES
INVOLVED. THESE ELEMENTS, AS WELL AS OTHER INFORMATION CONTAINED IN THE
PROSPECTUS, SHOULD BE CONSIDERED CAREFULLY BEFORE INVESTING.
- ------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2004.
For the year ended September 30, 2004, the amount of distributions from income
eligible for the 70% dividends received deduction for corportions is 100.00%.
The fund hereby designates the maximum amount allowable as qualified dividend
income eligible for a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. Complete information will be
reported in conjunction with your 2004 Form 1099-DIV.
- --------------------------------------------------------------------------------
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 Web site at
http://www.sec. gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is available
without charge by visiting the Proxy Voting section of mfs.com or by visiting
the SEC's Web site at http://www.sec.gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
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
(C) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc., 500
Boylston Street, Boston, MA 02116.
UNE-ANN-11/04 2M
MFS(R) Mutual Funds
ANNUAL REPORT 9/30/04
MFS(R) MID CAP 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 OR CREDIT UNION GUARANTEE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUIF
- ----------------------------------------------------------------------------------------
MFS(R) MID CAP VALUE FUND
The fund seeks capital appreciation.
THE 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.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 5
- ----------------------------------------------------
MANAGEMENT REVIEW 6
- ----------------------------------------------------
PORTFOLIO COMPOSITION 10
- ----------------------------------------------------
PERFORMANCE SUMMARY 11
- ----------------------------------------------------
EXPENSE TABLE 15
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 17
- ----------------------------------------------------
FINANCIAL STATEMENTS 24
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 41
- ----------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 53
- ----------------------------------------------------
TRUSTEES AND OFFICERS 54
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 58
- ----------------------------------------------------
FEDERAL TAX INFORMATION 59
- ----------------------------------------------------
CONTACT INFORMATION BACK COVER
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
For most investors, the main factor in determining long-term success is asset
allocation - how they spread their money among stocks, bonds, and cash. In
fact, the total returns of investors may be more influenced by their asset
allocation strategy than by their security selection within each asset class.
The principle behind asset allocation is simple: by diversifying across a
variety of types of securities, investors reduce the overall risk of their
portfolio because gains in one area are likely to offset losses in another.
One of the dangers of not having an asset allocation plan is the temptation to
simply chase performance, by moving money into whichever asset class appears to
be outperforming at the moment. The problem with this approach is that by the
time a particular area of the market comes into favor, investors may have
already missed some of the best performance. We would suggest that one way to
benefit from swings in the market is to acquire a diversified portfolio so that
investors hold a range of asset classes before the market swings in their
direction.
UNDERSTAND YOUR EMOTIONS
It usually takes a bear market for people to appreciate the benefits of
diversification. At MFS, we believe proper asset allocation is important in all
market environments. But we understand that there are emotional components of
investment decisions that sometimes keep investors from achieving their long
term goals. The three common behaviors that negatively impact investment
decisions are overconfidence, looking backwards, and loss aversion.
o Overconfidence. After experiencing gains in the market, particularly during
a bull market, investors have a natural tendency to overestimate their own
abilities. During the global bull market of the late 1990s, for example, a
large number of investors traded their own stocks and made significant
profits. However, most of these same investors later handed back those
profits - and then some - because they focused more on short-term blips in
the market and less on the fundamental factors that affect a company's
long-term prospects.
o Looking backwards. Although security prices are determined by expectations
about the future, many investors make choices based on the recent past.
Investors who have achieved momentary success in the market tend to take on
too much risk, believing that better- than-average returns can be easily
duplicated. On the other hand, those who have had negative experiences tend
to become overly cautious and take on too little risk. Recent historical
experience tends to dictate an investor's frame of reference and may lead
to irrational decisions.
o Loss aversion. Simply put, investors would rather avoid the immediate pain
of losses than enjoy the future pleasure of gains. As a result, some
investors tend to overreact to short-term downturns in the market by
seeking to mitigate their losses, rather than remaining invested to benefit
from the long-term growth potential of the stock and bond markets.
THINK LIKE A PROFESSIONAL INVESTOR
Asset allocation helps reduce the emotional factors that tend to affect the
long-term returns of investors. Professional investors - those who manage
assets for money management firms, pension funds, and endowments - have tended
to outperform the average retirement investor because they focus on asset
allocation. For example, the investment performance of the average 401(k)
participant in the United States has lagged these professional investors by
more than two percentage points a year, on average, over the past 10 years.(1)
We think asset allocation is one of the most important decisions for investors.
A study of the performance of 91 large U.S. corporate pension plans with assets
of more than $100 million over a 10-year period beginning in 1974 concluded
that asset allocation policies accounted for 93.6% of their returns, while
individual security selection and the timing of their investments accounted for
only 6.4% for their overall performance.(2)
Professional investors target a realistic level of return based on the amount
of risk they are willing to take, then set allocations to meet their goals. On
average, U.S. professional investors allocate 35% to 40% of their assets to
U.S. equity stocks; 20% to 30% to fixed income issues; 10% to non-U.S. stocks;
and between 10% and 20% to other investment classes such as real estate.(3) And
within those categories, they hold a broad range of styles and asset classes.
In contrast, U.S. 401(k) participants who held company stock in their
retirement plans at the end of 2002 had roughly 42% of their retirement assets
in company stock while the rest was allocated to either growth or value stock
funds.(4) These participants virtually ignored the broad range of equity,
fixed-income, and non-U.S. offerings provided by their retirement plans.
ALLOCATE, DIVERSIFY, REBALANCE
We recommend working with a professional adviser to find an optimal mix of
investments based on your individual goals. In our view, a disciplined asset
allocation strategy is composed of three simple steps: allocate, diversify and
rebalance.
o Allocate. Investors should work with their financial adviser to specify
their long-term goals and tolerance for risk. Then investors should
allocate their assets across the major asset classes - stocks, bonds, and
cash - to help them pursue an investment return that is consistent with
their risk tolerance level.
o Diversify. By diversifying their assets, investors trade some performance
in the top performing categories for a more predictable and stable
portfolio. At the same time, investors should include different investment
styles and market capitalizations of stocks as well as a range of fixed
income investments. Because security subclasses tend to move in and out of
favor during various market and economic environments, a broad portfolio
increases the benefits of diversification.
o Rebalance. We suggest that investors consult with their professional
advisers periodically to rebalance their portfolios to maintain the
percentages that they have dedicated to each asset class. Allocations can
shift as markets rise and fall, making for a riskier or more conservative
portfolio than an investor originally intended. For example, a portfolio of
50% U.S. stocks and 50% U.S. bonds at the start of 2000 would have shifted
to 32% U.S. stocks and 68% U.S. bonds at the end of 2002 because of the
weak stock market.(5)
In short, these three simple concepts - allocate, diversify and rebalance -
help take emotion out of the investment process and help prevent investors from
trying to outguess the market. An asset allocation strategy cannot turn a down
market cycle into a good one, but it is an invaluable tool to manage risk and
keep investors on track toward reaching their long-term investment goals.
A DISCIPLINED INVESTMENT PROCESS IS PARAMOUNT
Disciplined diversification has helped investors pursue long-term, above-
average results through the years. Since 1924, when we invented the mutual
fund, MFS(R) has strived to give investors the products and tools they need to
maintain well-diversified portfolios in part by providing a variety of products
in each asset class. We recommend developing a comprehensive financial plan
with an investment advisor who is familiar with your risk tolerance, your
individual goals, and your financial situation.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 15, 2004
Asset allocation and diversification can not guarantee a profit.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
(1) Source: Watson Wyatt
(2) "Determinants of Portfolio Performance," in Financial Analysts Journal,
January/February 1995, by
Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower
(3) Source: Greenwich Associates
(4) Source: Hewitt Associates
(5) Source: Lipper Inc.
- --------------------------------------------------------------------------------
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 recovery in global stock markets that began in the spring of 2003 continued
into the first quarter of 2004. Business capital expenditures, which had been
weak for several years, began to trend upward in the latter half of 2003,
adding support to a recovery that had been fueled largely by consumer spending.
In the spring and summer of 2004, many measures of global economic growth,
including employment, corporate spending, and earnings growth, continued to
improve. But stock prices made only modest gains as investors, in our view,
became increasingly concerned about higher interest rates, rising oil prices, a
slowdown in corporate earnings growth, and continuing unrest in Iraq. The U.S.
Federal Reserve Board raised interest rates in June, August, and September,
setting expectations for an ongoing series of modest rate hikes. A pullback in
equity markets near the end of the period was triggered, we believe, by
indications from a number of bellwether companies that earnings growth was
starting to slow.
DETRACTORS FROM PERFORMANCE
Stock selection and an underweighting in the technology sector were significant
detractors from relative performance during the period. The single biggest
detractor in the sector, and for the portfolio as a whole, was Agere Systems,
which manufactures data storage chips for cell phones and hard disc drives. The
company experienced a buildup of product inventories during the period, and its
stock experienced a steep decline. We had sold the stock by period end.
In the leisure sector, stock selection held back relative performance. Both
Citadel Broadcasting and Cox Radio proved to be disappointments. We had
expected both companies would benefit from the economic recovery and the surge
in ad spending that typically occurs during an Olympics and presidential
election year, but that spike in ad spending just did not materialize for many
radio companies.
Stock selection in the financial services sector also hurt the fund's relative
performance. Although no stock in the sector proved to be a top-10 detractor,
our biggest disappointment among financial services stocks was the online
banker NetBank. It declined amid intense competition in both the online
brokerage and mortgage businesses. We had sold the stock by the end of the
period.
While utilities and communications proved to be a top-performing sector for the
fund, two of our holdings, IDT Corp. and TXU, were among the largest individual
detractors from relative performance. We liked IDT because it has a number of
diverse businesses, including a movie production studio, phone cards for
overseas calls, and voiceover internet protocol communication services. Many
Wall Street analysts, though, worried that the high usage of cellular phones
would eventually erode IDT's calling card business, and the stock sold off in
January after rising sharply in the first three months of the period. TXU had a
big run-up in earnings and value during the year, which we missed because we
had sold the stock earlier in the period.
Our cash position, which we maintain for liquidity and which averaged only 2.2%
of fund assets during the period, also held back performance relative to the
benchmark, which does not include cash.
Among individual detractors, two retailers hurt our relative performance. Big
Lots is a discount store retailer that didn't perform as well as we had
expected. We had thought the tax rebate many consumers received last year would
drive them to discount retailers, but it was actually higher-end retailers that
experienced a pick-up in sales. Rite Aid is a bit of a turnaround stock with a
new management team, but they weren't able to fix some of the company's
problems as soon as we had expected. The pharmaceutical chain also lost value
in part because the United Auto Workers (UAW) announced in January that its
members would have to fill prescriptions for chronic illnesses through
mail-order vendors. That brought a significant loss of business for Rite Aid,
which has a strong presence in states with large numbers of UAW members.
Another individual detractor was Hayes Lemmerz, which makes steel and aluminum
wheels for the industry. We thought the company, which had emerged from
bankruptcy, was taking the right steps to fix its balance sheet, but the stock
declined substantially during the year. Another disappointment was Anchor Glass
Container, which makes glass and plastic bottles for food and beverage
companies, such as Coca-Cola. It also is a company emerging out of bankruptcy.
It didn't experience the earnings growth we had expected, and the stock, which
is not part of the benchmark, suffered a sharp decline during the period. We
sold our positions in Hayes Lemmerz and Anchor Glass by period end.
CONTRIBUTORS TO PERFORMANCE
On the positive side, stock selection and the decision to overweight the
strong-performing energy sector contributed to the fund's relative returns for
the period. One of the energy stocks that did well for us was Transocean, a
deep-water driller that benefits when the energy cycle is the strongest and the
big, integrated companies have the profits to invest in the more costly
deep-water drilling. We also bought Transocean when the company, which is not
part of the index, was going through a bit of a turnaround and its price was
cheap. We maintained a relative overweighting in the integrated oil and gas
company Amerada Hess, and its stock nearly doubled in value during the period.
The oil services company Smith International, which provides drilling equipment
to the industry, also did well for us, as it continued throughout the period to
meet or beat Wall Street estimates of its quarterly earnings. We also benefited
from our investment in Tom Brown, Inc., an oil and exploration company not held
in the index, which has since been acquired by the Canadian oil and gas company
EnCana Corp. We sold out of all three of the stocks - Transocean, Smith
International, and Tom Brown - by the end of the period.
Strong stock selection and a relative underweighting in the utilities and
communications sector helped relative performance. Sprint PCS was among the top
individual contributors in the sector. It did well in the highly competitive
wireless market, and it also benefited from its wireless tower business. Sprint
PCS was sold out of portfolio by the end of the period. Two other standouts in
the group were companies that own or lease broadcast signal and wireless
communication towers - SpectraSite, which is not in the benchmark, and American
Tower. As the public continues to use more and more mobile phone minutes, the
major wireless companies have been demanding more space on their towers.
Our stock selection - and, to a lesser extent, an underweighted position - in
the specialty products and services sector also helped relative performance.
Although it was not among the top-10 contributors for the fund as a whole,
School Specialty, a distributor of school supplies, was a solid-performing
selection in the sector. Its stock had become very inexpensive as many analysts
worried that city and town budgets would experience cuts and reduce school
spending. We didn't think that would be the case with the economy recovering
and rising property values providing cities and towns with more tax revenue.
School Specialty did well during the 2003 and 2004 school year. We had sold out
of the position by period end.
Finally, two other key individual stock decisions that helped the fund were our
avoidance of Safeway and our investment in Lyondell Chemical. We didn't think
Safeway would be able to compete with Wal-Mart, and that proved to be the case
as the stock had a difficult year. We invested in Lyondell because we thought
the stock was attractively priced, and we liked the favorable supply/ demand
situation in its ethylene business.
Respectfully,
/s/ Constantinos G. Mokas
Constantinos G. Mokas
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 as 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 Perspective for our current view of
the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
-----------------------------------------------
PORTFOLIO STRUCTURE
-----------------------------------------------
Stocks 95.5%
Cash & Other Net Assets 3.1%
Convertible Preffered Stock 1.0%
Convertible Bonds 0.4%
-----------------------------------------------
SECTOR WEIGHTINGS
-----------------------------------------------
Financial Services 24.6%
-----------------------------------------------
Energy 11.9%
-----------------------------------------------
Leisure 10.0%
-----------------------------------------------
Basic Materials 8.8%
-----------------------------------------------
Utilities & Communications 8.7%
-----------------------------------------------
Retailing 8.5%
-----------------------------------------------
Health Care 7.8%
-----------------------------------------------
Autos & Housing 4.2%
-----------------------------------------------
Industrial Goods & Services 3.7%
-----------------------------------------------
Technology 3.6%
-----------------------------------------------
Miscellaneous 2.1%
-----------------------------------------------
Consumer Staples 1.9%
-----------------------------------------------
Transportation 1.1%
-----------------------------------------------
-----------------------------------------------
TOP TEN HOLDINGS
-----------------------------------------------
DEVON ENERGY CORP. 1.7%
-----------------------------------------------
NOBLE CORP. 1.6%
-----------------------------------------------
BOWATER INC. 1.6%
-----------------------------------------------
LYONDELL CHEMICAL CO. 1.5%
-----------------------------------------------
FIRST HORIZON NATIONAL CORP. 1.3%
-----------------------------------------------
COMMUNITY HEALTH SYSTEMS INC. 1.3%
-----------------------------------------------
CITADEL BROADCASTING CORP. 1.2%
-----------------------------------------------
SMITHFIELD FOODS INC. 1.2%
-----------------------------------------------
MEDIMMUNE INC. 1.2%
-----------------------------------------------
HASBRO INC. 1.2%
-----------------------------------------------
Percentages are based on net assets as of 9/30/04.
The portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 9/30/04
- --------------------------------------------------------------------------------
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. (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. ANY
HIGH SHORT-TERM RETURNS MAY BE AND LIKELY WERE ATTRIBUTABLE TO RECENT FAVORABLE
MARKET CONDITIONS, WHICH MAY NOT BE REPEATED. 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
August 31, 2001, through September 30, 2004. Index information is from
September 1, 2001.)
MFS Mid Cap Russell
Value Fund MidCap
- Class A Value Index
8/01 $ 9,425 $10,000
9/01 8,237 9,046
9/02 8,070 8,552
9/03 10,107 10,972
9/04 12,379 13,784
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 1-yr 3-yr Life*
- ---------------------------------------------------------------------------
A 8/31/01 22.48% 14.54% 9.25%
- ---------------------------------------------------------------------------
B 11/01/01 21.68% 13.89% 8.65%
- ---------------------------------------------------------------------------
C 11/01/01 21.77% 13.92% 8.67%
- ---------------------------------------------------------------------------
I 11/01/01 22.93% 14.97% 9.65%
- ---------------------------------------------------------------------------
R1 12/31/02 22.43% 14.53% 9.23%
- ---------------------------------------------------------------------------
R2 10/31/03 21.97% 14.38% 9.10%
- ---------------------------------------------------------------------------
529A 7/31/02 22.19% 14.31% 9.03%
- ---------------------------------------------------------------------------
529B 7/31/02 21.36% 13.82% 8.57%
- ---------------------------------------------------------------------------
529C 7/31/02 21.44% 13.83% 8.59%
- ---------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks
- ---------------------------------------------------------------------------
Average mid cap value fund+ 21.78% 13.44% 8.75%
- ---------------------------------------------------------------------------
Russell MidCap Value Index# 25.62% 15.07% 10.97%
- ---------------------------------------------------------------------------
- --------------------
Average annual
with sales charge
- --------------------
Share class
- ---------------------------------------------------------------------------
A 15.44% 12.30% 7.17%
- ---------------------------------------------------------------------------
B 17.68% 13.12% 7.82%
- ---------------------------------------------------------------------------
C 20.77% 13.92% 8.67%
- ---------------------------------------------------------------------------
529A 15.17% 12.07% 6.96%
- ---------------------------------------------------------------------------
529B 17.36% 13.04% 7.75%
- ---------------------------------------------------------------------------
529C 20.44% 13.83% 8.59%
- ---------------------------------------------------------------------------
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 22.48% 50.28% 31.34%
- ---------------------------------------------------------------------------
B 21.68% 47.74% 29.13%
- ---------------------------------------------------------------------------
C 21.77% 47.86% 29.23%
- ---------------------------------------------------------------------------
I 22.93% 51.97% 32.82%
- ---------------------------------------------------------------------------
R1 22.43% 50.21% 31.28%
- ---------------------------------------------------------------------------
R2 21.97% 49.64% 30.79%
- ---------------------------------------------------------------------------
529A 22.19% 49.36% 30.54%
- ---------------------------------------------------------------------------
529B 21.36% 47.44% 28.86%
- ---------------------------------------------------------------------------
529C 21.44% 47.51% 28.92%
- ---------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
August 31, 2001, through September 30, 2004. Index information is from
September 1, 2001.
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
RUSSELL MIDCAP VALUE INDEX - measures the performance of U.S. mid-cap 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 (assuming redemption 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 529 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.
This 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 to which it is
blended, and lower performance for share classes with lower operating expenses
than the initial share class to which it is blended.
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. There also is an additional annual
fee, which is detailed in the program description, on qualified tuition
programs. If this fee was reflected, the performance for Class 529 shares would
have been lower. This annual fee is waived for Oregon residents and for those
accounts with assets of $25,000 or more.
The performance shown reflects a non-recurring accrual made to the fund on July
28, 2004, relating to MFS' revenue sharing settlement with the Securities and
Exchange Commission, without which the performance would have been lower.
KEY RISK CONSIDERATIONS
The portfolio may invest in foreign and/or emerging markets securities which
involves risks relating to interest rates, currency exchange rates, economic,
and political conditions.
The portfolio may invest in small-, mid-sized, or emerging companies, which are
susceptible to greater risk than is customarily associated with investing in
more established companies.
Prices of value company securities held by the portfolio may decline due to
changing economic, political or market conditions, or due to the financial
condition of the company which issued the security. If anticipated events do
not occur or are delayed, or if investor perceptions about the securities do
not improve, the market price of value company securities may not rise as
expected or may fall.
The portfolio may participate in the initial public offering (IPO) market, and
a significant portion of the portfolio's returns may be attributable to its
investment in IPOs, which may have a magnified investment performance impact
during the periods when the portfolio has a small asset base. Like any past
performance, there is no assurance that, as the portfolio's assets grow, it
will continue to experience substantially similar performance by investment in
IPOs.
The portfolio's value will vary daily since its investments will fluctuate in
response to issuer, market, regulatory, economic, or political developments.
Because stocks tend to be more volatile than some other investments, such as
bonds, the more assets a fund dedicates to stocks, generally the more volatile
the portfolio's value will be. Historically, stocks have outperformed bonds
over time. The portfolio's investment risks should be considered prior to
investing. Please see the prospectus for further information regarding these
and other risk considerations.
- --------------------------------------------------------------------------------
EXPENSE TABLE
- --------------------------------------------------------------------------------
FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM
APRIL 1, 2004, THROUGH SEPTEMBER 30, 2004.
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on certain purchase or redemption
payments and redemption fees on certain exchanges and redemptions, and (2)
ongoing costs, including management fees; distribution and service (12b-1)
fees; and other fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period, April 1, 2004 through September 30,
2004.
ACTUAL EXPENSES
The first line for each share class in the table below provides information
about actual account values and actual expenses. You may use the information in
this line, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the first line under the heading entitled "Expenses
Paid During Period" to estimate the expenses you paid on your account during
this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line for each share class in the table below provides information
about hypothetical account values and hypothetical expenses based on the
fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption fees. Therefore, the second line for each share
class in the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have
been higher.
- --------------------------------------------------------------------------------
Share Class
- --------------------------------------------------------------------------------
Expenses
Annualized Beginning Ending Paid During
Expense Account Value Account Value* Period**
Ratio 4/01/04 9/30/04 4/01/04-9/30/04
- --------------------------------------------------------------------------------
Actual 1.33% $1,000 $1,010 $6.70
A --------------------------------------------------------------------------
Hypothetical 1.33% $1,000 $1,018 $6.73
- --------------------------------------------------------------------------------
Actual 1.98% $1,000 $1,007 $9.96
B --------------------------------------------------------------------------
Hypothetical 1.98% $1,000 $1,015 $10.00
- --------------------------------------------------------------------------------
Actual 1.98% $1,000 $1,007 $9.96
C --------------------------------------------------------------------------
Hypothetical 1.98% $1,000 $1,015 $10.00
- --------------------------------------------------------------------------------
Actual 0.99% $1,000 $1,012 $4.99
I --------------------------------------------------------------------------
Hypothetical 0.99% $1,000 $1,020 $5.01
- --------------------------------------------------------------------------------
Actual 1.49% $1,000 $1,011 $7.51
R1 --------------------------------------------------------------------------
Hypothetical 1.49% $1,000 $1,018 $7.54
- --------------------------------------------------------------------------------
Actual 1.75% $1,000 $1,009 $8.81
R2 --------------------------------------------------------------------------
Hypothetical 1.75% $1,000 $1,016 $8.85
- --------------------------------------------------------------------------------
Actual 1.59% $1,000 $1,009 $8.01
529A --------------------------------------------------------------------------
Hypothetical 1.59% $1,000 $1,017 $8.04
- --------------------------------------------------------------------------------
Actual 2.23% $1,000 $1,006 $11.22
529B --------------------------------------------------------------------------
Hypothetical 2.23% $1,000 $1,014 $11.26
- --------------------------------------------------------------------------------
Actual 2.23% $1,000 $1,006 $11.22
529C --------------------------------------------------------------------------
Hypothetical 2.23% $1,000 $1,014 $11.26
- --------------------------------------------------------------------------------
* Ending account value reflects each class' ending account value assuming the
actual class return per year before expenses (Actual) and a hypothetical 5%
class return per year before expenses (Hypothetical).
** Expenses paid is equal to each class' annualized expense ratio for the most
recent six month period, as shown above, multiplied by the average account
value over the period, multiplied by the number of days in the period,
divided by the number of days in the year. Expenses paid do not include any
applicable sales charges (loads) or redemption fees. If these transaction
costs had been included, your costs would have been higher.
- -------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 9/30/04
- -------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Stocks - 95.5%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------
Aerospace - 2.1%
- -------------------------------------------------------------------------------------------------
Alliant Techsystems, Inc.* 87,000 $5,263,500
- -------------------------------------------------------------------------------------------------
United Defense Industries, Inc.* 109,000 4,358,910
- -------------------------------------------------------------------------------------------------
$9,622,410
- -------------------------------------------------------------------------------------------------
Apparel Manufacturers - 3.1%
- -------------------------------------------------------------------------------------------------
K-Swiss, Inc., "A" 57,600 $1,108,800
- -------------------------------------------------------------------------------------------------
Kellwood Co. 109,000 3,973,050
- -------------------------------------------------------------------------------------------------
Polo Ralph Lauren Corp., "A" 136,000 4,946,320
- -------------------------------------------------------------------------------------------------
Reebok International Ltd. 109,000 4,002,480
- -------------------------------------------------------------------------------------------------
$14,030,650
- -------------------------------------------------------------------------------------------------
Automotive - 2.0%
- -------------------------------------------------------------------------------------------------
Autoliv, Inc. 109,000 $4,403,600
- -------------------------------------------------------------------------------------------------
Magna International, Inc., "A" 33,000 2,444,640
- -------------------------------------------------------------------------------------------------
TRW Automotive Holdings Corp.* 109,000 2,054,650
- -------------------------------------------------------------------------------------------------
$8,902,890
- -------------------------------------------------------------------------------------------------
Banks & Credit Companies - 11.3%
- -------------------------------------------------------------------------------------------------
Assured Guaranty Ltd. 174,200 $2,902,172
- -------------------------------------------------------------------------------------------------
Astoria Financial Corp. 87,000 3,087,630
- -------------------------------------------------------------------------------------------------
City National Corp. 60,000 3,897,000
- -------------------------------------------------------------------------------------------------
Countrywide Financial Corp. 74,000 2,914,860
- -------------------------------------------------------------------------------------------------
First Horizon National Corp. 136,000 5,896,960
- -------------------------------------------------------------------------------------------------
GreenPoint Financial Corp. 55,000 2,544,300
- -------------------------------------------------------------------------------------------------
M&T Bank Corp. 38,000 3,636,600
- -------------------------------------------------------------------------------------------------
Mercantile Bankshares Corp. 72,500 3,477,100
- -------------------------------------------------------------------------------------------------
National Commerce Financial Corp. 96,000 3,284,160
- -------------------------------------------------------------------------------------------------
New York Community Bancorp, Inc. 136,000 2,793,440
- -------------------------------------------------------------------------------------------------
NewAlliance Bancshares, Inc. 273,000 3,917,550
- -------------------------------------------------------------------------------------------------
Regions Financial Corp. 109,000 3,603,540
- -------------------------------------------------------------------------------------------------
Sovereign Bancorp, Inc. 218,000 4,756,760
- -------------------------------------------------------------------------------------------------
TCF Financial Corp. 131,000 3,967,990
- -------------------------------------------------------------------------------------------------
$50,680,062
- -------------------------------------------------------------------------------------------------
Biotechnology - 1.7%
- -------------------------------------------------------------------------------------------------
Medimmune, Inc.* 229,000 $5,427,300
- -------------------------------------------------------------------------------------------------
Neurocrine Biosciences, Inc.* 49,000 2,310,840
- -------------------------------------------------------------------------------------------------
$7,738,140
- -------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 4.7%
- -------------------------------------------------------------------------------------------------
ADVO, Inc. 109,000 $3,372,460
- -------------------------------------------------------------------------------------------------
Citadel Broadcasting Corp.* 437,000 5,602,340
- -------------------------------------------------------------------------------------------------
Cox Radio, Inc., "A"* 218,000 3,252,560
- -------------------------------------------------------------------------------------------------
Dex Media, Inc.* 164,000 3,471,880
- -------------------------------------------------------------------------------------------------
Hearst-Argyle Television, Inc. 87,000 2,127,150
- -------------------------------------------------------------------------------------------------
R.H. Donnelley Corp.* 65,000 3,208,400
- -------------------------------------------------------------------------------------------------
$21,034,790
- -------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 7.1%
- -------------------------------------------------------------------------------------------------
A.G. Edwards, Inc. 109,000 $3,773,580
- -------------------------------------------------------------------------------------------------
Ameritrade Holding Corp.* 273,000 3,278,730
- -------------------------------------------------------------------------------------------------
E*TRADE Financial Corp.* 273,000 3,117,660
- -------------------------------------------------------------------------------------------------
Eaton Vance Corp. 71,000 2,867,690
- -------------------------------------------------------------------------------------------------
Federated Investors, Inc., "B" 136,000 3,867,840
- -------------------------------------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc., "A" 218,000 4,163,800
- -------------------------------------------------------------------------------------------------
Janus Capital Group, Inc. 327,000 4,450,470
- -------------------------------------------------------------------------------------------------
Legg Mason, Inc. 71,000 3,782,170
- -------------------------------------------------------------------------------------------------
Waddell & Reed Financial, Inc., "A" 117,000 2,574,000
- -------------------------------------------------------------------------------------------------
$31,875,940
- -------------------------------------------------------------------------------------------------
Business Services - 2.1%
- -------------------------------------------------------------------------------------------------
Ceridian Corp.* 253,900 $4,674,299
- -------------------------------------------------------------------------------------------------
Fiserv, Inc.* 135,000 4,706,100
- -------------------------------------------------------------------------------------------------
$9,380,399
- -------------------------------------------------------------------------------------------------
Chemicals - 1.8%
- -------------------------------------------------------------------------------------------------
Monsanto Co. 82,000 $2,986,440
- -------------------------------------------------------------------------------------------------
PPG Industries, Inc. 82,000 5,024,960
- -------------------------------------------------------------------------------------------------
$8,011,400
- -------------------------------------------------------------------------------------------------
Construction - 2.2%
- -------------------------------------------------------------------------------------------------
Eagle Materials, Inc. 65,000 $4,634,500
- -------------------------------------------------------------------------------------------------
Pulte Homes, Inc. 87,000 5,339,190
- -------------------------------------------------------------------------------------------------
$9,973,690
- -------------------------------------------------------------------------------------------------
Containers - 1.7%
- -------------------------------------------------------------------------------------------------
Owens-Illinois, Inc.* 273,000 $4,368,000
- -------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.* 175,000 3,389,750
- -------------------------------------------------------------------------------------------------
$7,757,750
- -------------------------------------------------------------------------------------------------
Electrical Equipment - 1.6%
- -------------------------------------------------------------------------------------------------
A.O. Smith Corp. 144,000 $3,506,400
- -------------------------------------------------------------------------------------------------
W.W. Grainger, Inc. 64,000 3,689,600
- -------------------------------------------------------------------------------------------------
$7,196,000
- -------------------------------------------------------------------------------------------------
Electronics - 1.1%
- -------------------------------------------------------------------------------------------------
Solectron Corp.* 982,000 $4,860,900
- -------------------------------------------------------------------------------------------------
Energy - Independent - 6.7%
- -------------------------------------------------------------------------------------------------
Devon Energy Corp. 109,000 $7,740,090
- -------------------------------------------------------------------------------------------------
EOG Resources, Inc. 49,000 3,226,650
- -------------------------------------------------------------------------------------------------
Newfield Exploration Co.* 65,000 3,980,600
- -------------------------------------------------------------------------------------------------
Noble Energy, Inc. 82,000 4,775,680
- -------------------------------------------------------------------------------------------------
NRG Energy, Inc.* 109,000 2,936,460
- -------------------------------------------------------------------------------------------------
Range Resources Corp. 218,000 3,812,820
- -------------------------------------------------------------------------------------------------
Unocal Corp. 82,000 3,526,000
- -------------------------------------------------------------------------------------------------
$29,998,300
- -------------------------------------------------------------------------------------------------
Energy - Integrated - 0.6%
- -------------------------------------------------------------------------------------------------
Amerada Hess Corp. 33,000 $2,937,000
- -------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.7%
- -------------------------------------------------------------------------------------------------
Kroger Co.* 262,000 $4,066,240
- -------------------------------------------------------------------------------------------------
Rite Aid Corp.* 983,000 3,460,160
- -------------------------------------------------------------------------------------------------
$7,526,400
- -------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 1.9%
- -------------------------------------------------------------------------------------------------
Dean Foods Co.* 109,000 $3,272,180
- -------------------------------------------------------------------------------------------------
Smithfield Foods, Inc.* 218,000 5,450,000
- -------------------------------------------------------------------------------------------------
$8,722,180
- -------------------------------------------------------------------------------------------------
Forest & Paper Products - 2.4%
- -------------------------------------------------------------------------------------------------
Boise Cascade Corp. 109,000 $3,627,520
- -------------------------------------------------------------------------------------------------
Bowater, Inc. 186,000 7,103,340
- -------------------------------------------------------------------------------------------------
$10,730,860
- -------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.6%
- -------------------------------------------------------------------------------------------------
Hilton Hotels Corp. 136,000 $2,562,240
- -------------------------------------------------------------------------------------------------
General Merchandise - 2.6%
- -------------------------------------------------------------------------------------------------
Big Lots, Inc.* 284,000 $3,473,320
- -------------------------------------------------------------------------------------------------
Family Dollar Stores, Inc. 164,000 4,444,400
- -------------------------------------------------------------------------------------------------
Neiman Marcus Group, Inc. "A" 65,000 3,737,500
- -------------------------------------------------------------------------------------------------
$11,655,220
- -------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 0.7%
- -------------------------------------------------------------------------------------------------
CIGNA Corp. 44,000 $3,063,720
- -------------------------------------------------------------------------------------------------
Insurance - 2.5%
- -------------------------------------------------------------------------------------------------
Conseco, Inc.* 250,000 $4,415,000
- -------------------------------------------------------------------------------------------------
PMI Group, Inc. 75,000 3,043,500
- -------------------------------------------------------------------------------------------------
Safeco Corp. 87,000 3,971,550
- -------------------------------------------------------------------------------------------------
$11,430,050
- -------------------------------------------------------------------------------------------------
Leisure & Toys - 1.2%
- -------------------------------------------------------------------------------------------------
Hasbro, Inc. 284,000 $5,339,200
- -------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 4.1%
- -------------------------------------------------------------------------------------------------
Apria Healthcare Group, Inc.* 145,300 $3,959,425
- -------------------------------------------------------------------------------------------------
Community Health Systems, Inc.* 211,800 5,650,824
- -------------------------------------------------------------------------------------------------
Healthsouth Corp.* 818,000 4,171,800
- -------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.* 420,000 4,531,800
- -------------------------------------------------------------------------------------------------
$18,313,849
- -------------------------------------------------------------------------------------------------
Medical Equipment - 1.3%
- -------------------------------------------------------------------------------------------------
Conceptus, Inc.* 218,000 $2,020,860
- -------------------------------------------------------------------------------------------------
Invitrogen Corp.* 71,000 3,904,290
- -------------------------------------------------------------------------------------------------
$5,925,150
- -------------------------------------------------------------------------------------------------
Metals & Mining - 0.8%
- -------------------------------------------------------------------------------------------------
Aber Diamond Corp.* 100,000 $3,454,812
- -------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 1.7%
- -------------------------------------------------------------------------------------------------
AGL Resources, Inc. 103,200 $3,175,464
- -------------------------------------------------------------------------------------------------
MDU Resources Group, Inc. 109,000 2,869,970
- -------------------------------------------------------------------------------------------------
Southern Union Co. 77,800 1,594,900
- -------------------------------------------------------------------------------------------------
$7,640,334
- -------------------------------------------------------------------------------------------------
Oil Services - 4.1%
- -------------------------------------------------------------------------------------------------
Cooper Cameron Corp.* 54,000 $2,961,360
- -------------------------------------------------------------------------------------------------
GlobalSantaFe Corp. 164,000 5,026,600
- -------------------------------------------------------------------------------------------------
Noble Corp.* 164,000 7,371,800
- -------------------------------------------------------------------------------------------------
Pride International, Inc.* 164,000 3,245,560
- -------------------------------------------------------------------------------------------------
$18,605,320
- -------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 0.5%
- -------------------------------------------------------------------------------------------------
Ingram Micro, Inc., "A"* 142,000 $2,286,200
- -------------------------------------------------------------------------------------------------
Precious Metals & Minerals - 0.6%
- -------------------------------------------------------------------------------------------------
Meridian Gold, Inc.* 175,000 $2,926,000
- -------------------------------------------------------------------------------------------------
Printing & Publishing - 2.2%
- -------------------------------------------------------------------------------------------------
Lamar Advertising Co., "A"* 71,000 $2,954,310
- -------------------------------------------------------------------------------------------------
Media General, Inc. "A" 82,000 4,587,900
- -------------------------------------------------------------------------------------------------
New York Times Co., "A" 55,000 2,150,500
- -------------------------------------------------------------------------------------------------
$9,692,710
- -------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.5%
- -------------------------------------------------------------------------------------------------
CSX Corp. 66,000 $2,191,200
- -------------------------------------------------------------------------------------------------
Real Estate - 3.7%
- -------------------------------------------------------------------------------------------------
American Financial Realty Trust 218,000 $3,075,980
- -------------------------------------------------------------------------------------------------
Annaly Mortgage Management, Inc. 110,000 1,884,300
- -------------------------------------------------------------------------------------------------
Boston Properties, Inc. 44,000 2,437,160
- -------------------------------------------------------------------------------------------------
Crescent Real Estate Equities Co. 164,000 2,581,360
- -------------------------------------------------------------------------------------------------
Host Marriott Corp. 218,000 3,058,540
- -------------------------------------------------------------------------------------------------
SL Green Realty Corp. 67,000 3,471,270
- -------------------------------------------------------------------------------------------------
$16,508,610
- -------------------------------------------------------------------------------------------------
Restaurants - 1.4%
- -------------------------------------------------------------------------------------------------
Wendy's International, Inc. 82,000 $2,755,200
- -------------------------------------------------------------------------------------------------
YUM! Brands, Inc. 82,000 3,334,120
- -------------------------------------------------------------------------------------------------
$6,089,320
- -------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.5%
- -------------------------------------------------------------------------------------------------
Lyondell Chemical Co. 305,000 $6,850,300
- -------------------------------------------------------------------------------------------------
Specialty Stores - 1.2%
- -------------------------------------------------------------------------------------------------
Pier 1 Imports, Inc. 109,000 $1,970,720
- -------------------------------------------------------------------------------------------------
Sports Authority, Inc.* 140,000 3,248,000
- -------------------------------------------------------------------------------------------------
$5,218,720
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.1%
- -------------------------------------------------------------------------------------------------
Andrew Corp.* 407,000 $4,981,680
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.0%
- -------------------------------------------------------------------------------------------------
ADC Telecommunications, Inc.* 2,107,000 $3,813,670
- -------------------------------------------------------------------------------------------------
Avaya, Inc.* 163,000 2,272,220
- -------------------------------------------------------------------------------------------------
Scientific-Atlanta, Inc. 109,000 2,825,280
- -------------------------------------------------------------------------------------------------
$8,911,170
- -------------------------------------------------------------------------------------------------
Telephone Services - 0.8%
- -------------------------------------------------------------------------------------------------
IDT Corp., "B"* 250,000 $3,757,500
- -------------------------------------------------------------------------------------------------
Trucking - 0.6%
- -------------------------------------------------------------------------------------------------
Werner Enterprises, Inc. 136,000 $2,626,160
- -------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.2%
- -------------------------------------------------------------------------------------------------
Calpine Corp.* 487,700 $1,414,330
- -------------------------------------------------------------------------------------------------
Cinergy Corp. 98,000 3,880,800
- -------------------------------------------------------------------------------------------------
PPL Corp. 98,000 4,623,640
- -------------------------------------------------------------------------------------------------
$9,918,770
- -------------------------------------------------------------------------------------------------
Utilities - Telephone - 1.8%
- -------------------------------------------------------------------------------------------------
American Tower Corp., "A"* 327,000 $5,019,450
- -------------------------------------------------------------------------------------------------
SpectraSite, Inc.* 70,000 3,255,000
- -------------------------------------------------------------------------------------------------
$8,274,450
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $401,680,941) $429,202,446
- -------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 1.0%
- -------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.0%
- -------------------------------------------------------------------------------------------------
Aquila, Inc.* (Identified Cost, $3,750,000) 150,000 $4,590,000
- -------------------------------------------------------------------------------------------------
Convertible Bonds - 0.4%
- -------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -------------------------------------------------------------------------------------------------
Oil Services - 0.4%
- -------------------------------------------------------------------------------------------------
McMoRan Exploration Co., 5.25%, 2011##
(Identified Cost, $1,900,000) $1,900,000 $1,900,000
- -------------------------------------------------------------------------------------------------
Short-Term Obligation - 2.0%
- -------------------------------------------------------------------------------------------------
General Electric Co., 1.88%, due 10/01/04, at Amortized Cost $9,074,000 $9,074,000
- -------------------------------------------------------------------------------------------------
Repurchase Agreement - 9.4%
- -------------------------------------------------------------------------------------------------
Morgan Stanley, 1.86%, dated 9/30/04, due 10/01/04, total to
be received $42,086,174 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account), at
Cost $42,084,000 $42,084,000
- -------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $458,488,941) $486,850,446
- -------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (8.3)% (37,162,386)
- -------------------------------------------------------------------------------------------------
Net Assets - 100.0% $449,688,060
- -------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 9/30/04
ASSETS
Investments, at value (identified cost, $458,488,941) $486,850,446
- -----------------------------------------------------------------------------------------------------
Cash 898
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 19,204,497
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 965,558
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 317,100
- -----------------------------------------------------------------------------------------------------
Receivable from administrative proceeding settlement 5,358
- -----------------------------------------------------------------------------------------------------
Receivable from investment adviser 206,516
- -----------------------------------------------------------------------------------------------------
Total assets $507,550,373
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $57,338,747
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 324,521
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 9,215
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 3,941
- -----------------------------------------------------------------------------------------------------
Program manager fee 7
- -----------------------------------------------------------------------------------------------------
Administrative service fee 2
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 185,880
- -----------------------------------------------------------------------------------------------------
Total liabilities $57,862,313
- -----------------------------------------------------------------------------------------------------
Net assets $449,688,060
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $383,064,691
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 28,361,505
- -----------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments
and foreign currency transactions 38,265,577
- -----------------------------------------------------------------------------------------------------
Accumulated net investment loss (3,713)
- -----------------------------------------------------------------------------------------------------
Net assets $449,688,060
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 34,228,169
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
Net assets $83,631,174
- -----------------------------------------------------------------------------------------------------
Shares outstanding 6,369,074
- -----------------------------------------------------------------------------------------------------
Net asset value per share $13.13
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$13.13) $13.93
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $88,348,122
- -----------------------------------------------------------------------------------------------------
Shares outstanding 6,842,395
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.91
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $25,481,855
- -----------------------------------------------------------------------------------------------------
Shares outstanding 1,972,760
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.92
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $249,117,561
- -----------------------------------------------------------------------------------------------------
Shares outstanding 18,805,942
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $13.25
- -----------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $1,941,174
- -----------------------------------------------------------------------------------------------------
Shares outstanding 148,108
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $13.11
- -----------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $212,119
- -----------------------------------------------------------------------------------------------------
Shares outstanding 16,245
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $13.06
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class 529A shares
Net assets $643,108
- -----------------------------------------------------------------------------------------------------
Shares outstanding 49,290
- -----------------------------------------------------------------------------------------------------
Net asset value per share $13.05
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$13.05) $13.85
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $135,426
- -----------------------------------------------------------------------------------------------------
Shares outstanding 10,550
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.84
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $177,521
- -----------------------------------------------------------------------------------------------------
Shares outstanding 13,805
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.86
- -----------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund operations.
FOR YEAR ENDED 9/30/04
NET INVESTMENT LOSS
Income
- -----------------------------------------------------------------------------------------------------
Dividends $3,949,762
- -----------------------------------------------------------------------------------------------------
Interest 266,255
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (14,803)
- -----------------------------------------------------------------------------------------------------
Total investment income $4,201,214
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $2,679,546
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 9,818
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 523,930
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 243,901
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 824,628
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 218,916
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 6,990
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 154
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 1,446
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 930
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 1,092
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 1,033
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 233
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 273
- -----------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 77
- -----------------------------------------------------------------------------------------------------
Administrative fee 32,168
- -----------------------------------------------------------------------------------------------------
Custodian fee 123,613
- -----------------------------------------------------------------------------------------------------
Printing 52,984
- -----------------------------------------------------------------------------------------------------
Postage 25,961
- -----------------------------------------------------------------------------------------------------
Auditing fees 24,126
- -----------------------------------------------------------------------------------------------------
Legal fees 7,386
- -----------------------------------------------------------------------------------------------------
Miscellaneous 153,477
- -----------------------------------------------------------------------------------------------------
Total expenses $4,932,682
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (5,365)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (79,069)
- -----------------------------------------------------------------------------------------------------
Net expenses $4,848,248
- -----------------------------------------------------------------------------------------------------
Net investment loss $(647,034)
- -----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $46,450,008
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions (2,609)
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $46,447,399
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $14,170,922
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (37)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $14,170,885
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $60,618,284
- -----------------------------------------------------------------------------------------------------
Change in net assets from operations $59,971,250
- -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 9/30 2004 2003
CHANGE IN NET ASSETS
OPERATIONS
Net investment loss $(647,034) $(152,490)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 46,447,399 1,335,357
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 14,170,885 30,152,632
- --------------------------------------------------------------- ------------ ------------
Change in net assets from operations $59,971,250 $31,335,499
- --------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments and foreign currency
transactions
- -------------------------------------------------------------------------------------------------------
Class I $(268,460) $--
- -------------------------------------------------------------------------------------------------------
Class R1 (1,085) --
- -------------------------------------------------------------------------------------------------------
Class R2 (6) --
- --------------------------------------------------------------- ------------ ------------
Total distributions declared to shareholders $(269,551) $--
- --------------------------------------------------------------- ------------ ------------
Net change in net assets from fund share transactions $165,644,917 $106,583,101
- --------------------------------------------------------------- ------------ ------------
Redemption fees $1,121 $--
- --------------------------------------------------------------- ------------ ------------
Total change in net assets $225,347,737 $137,918,600
- --------------------------------------------------------------- ------------ ------------
NET ASSETS
At beginning of period $224,340,323 $86,421,723
- -------------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment loss
of $3,713 and accumulated undistributed net investment
income of $12,937, respectively) $449,688,060 $224,340,323
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years
(or, if shorter, the period of the fund's operation). Certain information reflects financial results for a single fund
share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an
investment in the fund (assuming reinvestment of all distributions) held for the entire period. This information has
been audited by the fund's independent registered public accounting firm, whose report, together with the fund's
financial statements, are included in this report.
YEARS ENDED 9/30 PERIOD
----------------------------------------------- ENDED
CLASS A 2004 2003 2002 9/30/01*
Net asset value, beginning of period $10.72 $8.56 $8.74 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.02) $0.01 $0.02 $0.02
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 2.43 2.15 (0.20) (1.28)
- ------------------------------------------------------ ---------- ------ ------ ------
Total from investment operations $2.41 $2.16 $(0.18) $(1.26)
- ------------------------------------------------------ ---------- ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $-- $-- $(0.00)+++ $--
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions -- -- (0.00)+++ --
- ------------------------------------------------------ ---------- ------ ------ ------
Total distributions declared to shareholders $-- $-- $(0.00)+++ $--
- ------------------------------------------------------ ---------- ------ ------ ------
Redemption fees added to paid-in capital# $0.00+++ $-- $-- $--
- ------------------------------------------------------ ---------- ------ ------ ------
Net asset value, end of period $13.13 $10.72 $8.56 $8.74
- ------------------------------------------------------ ---------- ------ ------ ------
Total return (%)(+) 22.48 25.23 (2.03) (12.60)++
- ---------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
YEARS ENDED 9/30 PERIOD
----------------------------------------------- ENDED
CLASS A (CONTINUED) 2004 2003 2002 9/30/01*
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.34 1.34 1.37 1.00+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.17) 0.10 0.22 2.24+
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 128 158 113 66
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $83,631 $47,603 $26,013 $262
- ---------------------------------------------------------------------------------------------------------------------------
(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 0.25% 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. 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 February 1, 2005 or such date as all expenses previously borne by MFS
under the agreement have been paid by the fund. Prior to October 1, 2001, the distributor contractually waived its
fee for the period. Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for
its proportional share of Independent Chief Compliance Officer service fees paid to Tarantino LLC. To the extent
actual expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.02) $(0.01) $(0.02) $(0.88)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.36 1.50 1.83 120.50+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.19) (0.06) (0.24) (117.26)+
- ---------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, August 31, 2001, through September 30, 2001.
+ 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 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
YEARS ENDED 9/30 PERIOD
------------------------------ ENDED
CLASS B 2004 2003 9/30/02*
Net asset value, beginning of period $10.61 $8.53 $9.37^
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.10) $(0.05) $(0.04)
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.40 2.13 (0.80)
- ----------------------------------------------------------------- -------- ------ ------
Total from investment operations $2.30 $2.08 $(0.84)
- ----------------------------------------------------------------- -------- ------ ------
Less distributions declared to shareholders from net realized
gain on investments and foreign currency transactions $-- $-- (0.00)+++
- ----------------------------------------------------------------- -------- ------ ------
Redemption fees added to paid-in capital# $0.00+++ $-- $--
- ----------------------------------------------------------------- -------- ------ ------
Net asset value, end of period $12.91 $10.61 $8.53
- ----------------------------------------------------------------- -------- ------ ------
Total return (%) 21.68 24.38 (8.95)++^
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.99 1.99 2.02+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (0.82) (0.54) (0.44)+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 128 158 113
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $88,348 $65,799 $44,390
- -----------------------------------------------------------------------------------------------------------------
(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 0.25% 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. 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 February 1,
2005 or such date as all expenses previously borne by MFS under the agreement have been paid by the fund.
Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of Independent Chief Compliance Officer service fees paid to Tarantino LLC. To the extent
actual expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.10) $(0.07) $(0.09)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.01 2.14 2.48+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (0.84) (0.69) (0.90)+
- -----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class B shares, November 1, 2001, through September 30, 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.
^ The beginning NAV previously reported for the period ended September 30, 2002 has been revised from $9.24 to
$9.37, to reflect the NAV on November 1, 2001, the date that the share class was first available to public
shareholders. The beginning NAV previously reported was from October 31, 2001, the date the share class was
originally seeded. Accordingly, the total return previously reported has also been revised from (7.67)% to
(8.95)%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEARS ENDED 9/30 PERIOD
------------------------------ ENDED
CLASS C 2004 2003 9/30/02*
Net asset value, beginning of period $10.61 $8.53 $9.37^
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.10) $(0.05) $(0.04)
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.41 2.13 (0.80)
- ----------------------------------------------------------------- -------- ------ ------
Total from investment operations $2.31 $2.08 $(0.84)
- ----------------------------------------------------------------- -------- ------ ------
Less distributions declared to shareholders from net realized
gain on investments and foreign currency transactions $-- $-- (0.00)+++
- ----------------------------------------------------------------- -------- ------ ------
Redemption fees added to paid-in capital# $0.00+++ $-- $--
- ----------------------------------------------------------------- -------- ------ ------
Net asset value, end of period $12.92 $10.61 $8.53
- ----------------------------------------------------------------- -------- ------ ------
Total return (%) 21.77 24.38 (8.95)++^
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.99 1.99 2.02+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (0.82) (0.54) (0.46)+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 128 158 113
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $25,482 $16,369 $11,348
- -----------------------------------------------------------------------------------------------------------------
(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 0.25% 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. 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 February 1,
2005 or such date as all expenses previously borne by MFS under the agreement have been paid by the fund.
Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of Independent Chief Compliance Officer service fees paid to Tarantino LLC. To the extent
actual expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.10) $(0.07) $(0.09)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.01 2.14 2.48+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (0.84) (0.69) (0.92)+
- -----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class C shares, November 1, 2001, through September 30, 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.
^ The beginning NAV previously reported for the period ended September 30, 2002 has been revised from $9.24 to
$9.37, to reflect the NAV on November 1, 2001, the date that the share class was first available to public
shareholders. The beginning NAV previously reported was from October 31, 2001, the date the share class was
originally seeded. Accordingly, the total return previously reported has also been revised from (7.67)% to
(8.95)%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEARS ENDED 9/30 PERIOD
------------------------------- ENDED
CLASS I 2004 2003 9/30/02*
Net asset value, beginning of period $10.80 $8.59 $9.37^
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.02 $0.04 $0.06
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.45 2.17 (0.84)
- ----------------------------------------------------------------- -------- ------ ------
Total from investment operations $2.47 $2.21 $(0.78)
- ----------------------------------------------------------------- -------- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $-- $-- $(0.00)+++
- -----------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions (0.02) -- (0.00)+++
- ----------------------------------------------------------------- -------- ------ ------
Total distributions declared to shareholders $(0.02) $-- $(0.00)+++
- ----------------------------------------------------------------- -------- ------ ------
Redemption fees added to paid-in capital# $0.00+++ $-- $--
- ----------------------------------------------------------------- -------- ------ ------
Net asset value, end of period $13.25 $10.80 $8.59
- ----------------------------------------------------------------- -------- ------ ------
Total return (%) 22.93 25.58 (8.18)++^
- -----------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
YEARS ENDED 9/30 PERIOD
------------------------------- ENDED
CLASS I (CONTINUED) 2004 2003 9/30/02*
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.99 1.00 1.02+
- -----------------------------------------------------------------------------------------------------------------
Net investment income 0.18 0.43 0.99+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 128 158 113
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $249,118 $93,944 $4,655
- -----------------------------------------------------------------------------------------------------------------
(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 0.25% 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. 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 February 1, 2005 or
such date as all expenses previously borne by MFS under the agreement have been paid by the fund. Effective
June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share
of Independent Chief Compliance Officer service fees paid to Tarantino LLC. To the extent actual expenses
were over this limitation, the net investment income per share and the ratios would have been:
Net investment income $0.02 $0.03 $0.03
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.01 1.16 1.48+
- -----------------------------------------------------------------------------------------------------------------
Net investment income 0.16 0.27 0.53+
- -----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class I shares, November 1, 2001, through September 30, 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.
^ The beginning NAV previously reported for the period ended September 30, 2002 has been revised from $9.24 to
$9.37, to reflect the NAV on November 1, 2001, the date that the share class was first available to public
shareholders. The beginning NAV previously reported was from October 31, 2001, the date the share class was
originally seeded. Accordingly, the total return previously reported has also been revised from (6.89)% to
(8.18)%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS R1 9/30/04 9/30/03*
Net asset value, beginning of period $10.72 $9.16
- --------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.04) $(0.00)+++
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.44 1.56++++
- ------------------------------------------------------------------- ----------- ------
Total from investment operations $2.40 $1.56
- ------------------------------------------------------------------- ----------- ------
Less distributions declared to shareholders from net realized gain
on investments and foreign currency transactions $(0.01) $--
- ------------------------------------------------------------------- ----------- ------
Redemption fees added to paid-in capital# $0.00+++ $--
- ------------------------------------------------------------------- ----------- ------
Net asset value, end of period $13.11 $10.72
- ------------------------------------------------------------------- ----------- ------
Total return (%) 22.43 17.03++
- --------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.50 1.49+
- --------------------------------------------------------------------------------------------------------
Net investment loss (0.30) (0.06)+
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 128 158
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,941 $260
- --------------------------------------------------------------------------------------------------------
(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 0.25%
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. 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 February 1, 2005 or such date as all expenses
previously borne by MFS under the agreement have been paid by the fund. Effective June 7, 2004, the
investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. To the extent actual
expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.04) $(0.02)
- --------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.52 1.65+
- --------------------------------------------------------------------------------------------------------
Net investment loss (0.32) (0.22)+
- --------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through September 30, 2003.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
++++ 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.
# 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 9/30/04*
Net asset value, beginning of period $11.43
- ------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.06)
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 1.70++++
- -------------------------------------------------------------------------------- --------
Total from investment operations $1.64
- -------------------------------------------------------------------------------- --------
Less distributions declared to shareholders from net realized gain on
investments and foreign currency transactions $(0.01)
- -------------------------------------------------------------------------------- --------
Redemption fees added to paid-in capital# $0.00+++
- -------------------------------------------------------------------------------- --------
Net asset value, end of period $13.06
- -------------------------------------------------------------------------------- --------
Total return (%) 14.39++
- ------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.76+
- ------------------------------------------------------------------------------------------
Net investment loss (0.62)+
- ------------------------------------------------------------------------------------------
Portfolio turnover 128
- ------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $212
- ------------------------------------------------------------------------------------------
(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 0.50% annually. This arrangement is effected by MFS
bearing all of the fund's Other Expenses (except for Class R2 administrative service
fee) 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. 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 February 1, 2005 or such date as all expenses previously
borne by MFS under the agreement have been paid by the fund. Effective June 7, 2004,
the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of Independent Chief Compliance Officer service fees paid to
Tarantino LLC. 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## 1.78+
- ------------------------------------------------------------------------------------------
Net investment loss (0.64)+
- ------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through September 30, 2004.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
++++ 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.
# 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
YEARS ENDED 9/30 PERIOD
------------------------------ ENDED
CLASS 529A 2004 2003 9/30/02*
Net asset value, beginning of period $10.68 $8.55 $9.25
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.05) $(0.02) $0.01
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.42 2.15 (0.71)
- ----------------------------------------------------------------- -------- ------ ------
Total from investment operations $2.37 $2.13 $(0.70)
- ----------------------------------------------------------------- -------- ------ ------
Redemption fees added to paid-in capital# $0.00+++ $-- $--
- ----------------------------------------------------------------- -------- ------ ------
Net asset value, end of period $13.05 $10.68 $8.55
- ----------------------------------------------------------------- -------- ------ ------
Total return (%)(+) 22.19 24.91 (7.57)++^
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.60 1.59 1.62+
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.42) (0.18) 0.50+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 128 158 113
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $643 $262 $7
- -----------------------------------------------------------------------------------------------------------------
(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 0.50% annually. This arrangement is
effected by MFS bearing all of the fund's Other Expenses (except for Class 529 tuition program manager fees)
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. 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 February 1, 2005 or such date as all expenses previously borne by MFS under
the agreement have been paid by the fund. Effective June 7, 2004, the investment adviser has voluntarily
agreed to reimburse the fund for its proportional share of Independent Chief Compliance Officer service fees
paid to Tarantino LLC. 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) $(0.05) $(0.03) $0.00+++
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.62 1.75 2.08+
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.44) (0.34) 0.04+
- -----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A shares, July 31, 2002, through September 30, 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 do not include the applicable sales charge. If the charge had been included, the results would
have been lower.
^ The total return previously reported has been revised from (7.47)% to (7.57)% to reflect total return
performance from July 31, 2002, the date that the share class was first available to public shareholders. The
performance previously reported was from July 30, 2002, the date the share class was originally seeded.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEARS ENDED 9/30 PERIOD
------------------------------ ENDED
CLASS 529B 2004 2003 9/30/02*
Net asset value, beginning of period $10.58 $8.52 $9.22
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.13) $(0.08) $(0.00)+++
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.39 2.14 (0.70)
- ----------------------------------------------------------------- -------- ------ ------
Total from investment operations $2.26 $2.06 $(0.70)
- ----------------------------------------------------------------- -------- ------ ------
Redemption fees added to paid-in capital# $0.00+++ $-- $--
- ----------------------------------------------------------------- -------- ------ ------
Net asset value, end of period $12.84 $10.58 $8.52
- ----------------------------------------------------------------- -------- ------ ------
Total return (%) 21.36 24.18 (7.59)++^
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.24 2.24 2.27+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (1.07) (0.82) (0.20)+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 128 158 113
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $135 $59 $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 0.50% annually. This arrangement is
effected by MFS bearing all of the fund's Other Expenses (except for Class 529 tuition program manager fees)
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. 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 February 1, 2005 or such date as all expenses previously borne by MFS under
the agreement have been paid by the fund. Effective June 7, 2004, the investment adviser has voluntarily
agreed to reimburse the fund for its proportional share of Independent Chief Compliance Officer service fees
paid to Tarantino LLC. To the extent actual expenses were over this limitation, the net investment loss per
share and the ratios would have been:
Net investment loss $(0.13) $(0.10) $(0.01)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.26 2.40 2.73+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (1.09) (0.98) (0.66)+
- -----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B shares, July 31, 2002, through September 30, 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.
^ The total return previously reported has been revised from (7.49)% to (7.59)% to reflect total return
performance from July 31, 2002, the date that the share class was first available to public shareholders. The
performance previously reported was from July 30, 2002, the date the share class was originally seeded.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEARS ENDED 9/30 PERIOD
------------------------------ ENDED
CLASS 529C 2004 2003 9/30/02*
Net asset value, beginning of period $10.59 $8.52 $9.23
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.13) $(0.08) $(0.00)+++
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.40 2.15 (0.71)
- ----------------------------------------------------------------- -------- ------ ------
Total from investment operations $2.27 $2.07 $(0.71)
- ----------------------------------------------------------------- -------- ------ ------
Redemption fees added to paid-in capital# $0.00+++ $-- $--
- ----------------------------------------------------------------- -------- ------ ------
Net asset value, end of period $12.86 $10.59 $8.52
- ----------------------------------------------------------------- -------- ------ ------
Total return (%) 21.44 24.30 (7.69)++^
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.24 2.24 2.27+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (1.06) (0.85) (0.20)+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 128 158 113
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $178 $44 $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 0.50% annually. This arrangement is
effected by MFS bearing all of the fund's Other Expenses (except for Class 529 tuition program manager fees)
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. 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 February 1, 2005 or such date as all expenses previously borne by MFS under
the agreement have been paid by the fund. Effective June 7, 2004, the investment adviser has voluntarily
agreed to reimburse the fund for its proportional share of Independent Chief Compliance Officer service fees
paid to Tarantino LLC. To the extent actual expenses were over this limitation, the net investment loss per
share and the ratios would have been:
Net investment loss $(0.13) $(0.10) $(0.01)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.26 2.40 2.73+
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (1.08) (1.01) (0.66)+
- -----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C shares, July 31, 2002, through September 30, 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.
^ The total return previously reported has been revised from (7.59)% to (7.69)% to reflect total return
performance from July 31, 2002, the date that the share class was first available to public shareholders. The
performance previously reported was from July 30, 2002, the date the share class was originally seeded.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Mid Cap Value Fund (the fund) is a diversified series of MFS Series Trust
XI (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 U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities 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. Bonds and other fixed income securities (other than
short-term obligations) in the fund's portfolio are valued at an evaluated bid
price as reported by an independent pricing service, or to the extent a
valuation is not reported by a pricing service, such securities are valued on
the basis of quotes from brokers and dealers. Prices obtained from pricing
services utilize both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. 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. When pricing service information or
market quotations are not readily available, securities are priced at fair
value as determined under the direction of the Board of Trustees. 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 quotations 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.
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.
SHORT TERM FEES - For purchases made on or after July 1, 2004, the fund will
charge a 2% redemption fee (which is retained by the fund) on proceeds from
Class A, Class B, Class C, and Class I shares redeemed or exchanged within 5
business days following their acquisition (either by purchase or exchange). The
fund may change the redemption fee period in the future, including changes in
connection with pending Securities and Exchange Commission rules. See the
fund's prospectus for details. 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 U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. During the year ended September 30, 2004, the fund's custodian fees were
reduced by $2,871 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 year ended September 30, 2004, the fund's miscellaneous expenses
were reduced by $2,494 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 foreign currency transactions, real estate investment trusts,
wash sales, and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended September 30,
2004 and September 30, 2003 was as follows:
9/30/04 9/30/03
Distributions declared from:
- ---------------------------------------------------------------
Ordinary income $269,551 $--
- ---------------------------------------------------------------
During the year ended September 30, 2004, accumulated net investment loss
decreased by $630,384, accumulated net realized gain on investments and foreign
currency transactions decreased by $3,558,398, and paid-in capital increased by
$2,928,014 due to differences between book and tax accounting for foreign
currency transactions and real estate investment trusts, a net operating loss,
treating a portion of the proceeds from redemptions as a distribution from
realized gains for tax purposes and differences in accounting for certain debt
securities. This change had no effect on the net assets or net asset value per
share.
As of September 30, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $27,125,462
----------------------------------------------------------
Undistributed long-term capital gain 11,888,715
----------------------------------------------------------
Unrealized appreciation (depreciation) 27,634,747
----------------------------------------------------------
Other temporary differences (25,555)
----------------------------------------------------------
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.
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 for
Class A, Class B, Class C, Class I, and Class R1 shares and 0.50% annually for
Class R2, Class 529A, Class 529B, and Class 529C shares. This arrangement is
effected by MFS bearing all of the fund's other expenses (exclusive of Class R2
administrative service fee in the case of Class R2 shares and tuition program
manager fees in the case of the 529 share classes) during the fund's fiscal
year, and the fund paying MFS a reimbursement fee not greater than 0.25% of
average daily net assets. To the extent that the expense reimbursement fee
exceeds the fund's actual expenses, the excess will be applied to unreimbursed
amounts paid by MFS under the current agreement. This agreement will terminate
on the earlier of February 1, 2005 or such date as all expenses previously
borne by MFS under the current agreement have been paid by the fund. The fund
will not be required to reimburse MFS the $524,973 for expenses borne under a
previous agreement that expired on September 1, 2004. For the period from
September 1, 2004 through September 30, 2004, the fund's Other Expenses did not
exceed the expense reimbursement threshold and the fund bore its own expenses.
The fund pays compensation to its Independent Trustees in the form of a
retainer, attendance fees, and additional compensation to Board and Committee
chairpersons, 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).
This fund and certain other MFS funds ("the funds") have entered into a
services agreement (the "Agreement") which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse each of the funds for a proportional share of substantially all of
the payments made by the funds to Tarantino LLC and also to provide office
space and other administrative support and supplies to the ICCO. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement.
The fund's investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in connection
with fund sales, as described in the Legal Proceedings Footnote. Pursuant to
the SEC Order, on July 28, 2004, MFS transferred $1.00 in disgorgement and $50
million in penalty to the SEC (the "Payments"). A plan for distribution of
these Payments has been submitted to the SEC. Contemporaneous with the
transfer, the fund accrued an estimate of the amount to be received upon final
approval of the plan of distribution. The non- recurring accrual in the amount
of $5,358 did not have a material impact on the net asset value per share based
on the shares outstanding on the day the proceeds were recorded.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment advisor. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid 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%
----------------------------------------------------------
Effective April 1, 2004, the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------------------
In excess of $7 billion 0.00000%
----------------------------------------------------------
For the year ended September 30, 2004, the fund paid MFS $32,168 equivalent to
0.0090% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
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
$63,406 and $1,059 for the year ended September 30, 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.
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%
- ----------------------------------------------------------------------------------------------------------------
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 year ended
September 30, 2004 amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $5,431 $422 $462 $13 $21
- ----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $692 $20 $71
- --------------------------------------------------------------------------------
Fees incurred under the distribution plan during the year ended September 30, 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 529A distribution fee that is not currently being charged will be
implemented on such 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 Class
529C shares, the first year from the end of the calendar month of purchase. A contingent deferred sales charge is
imposed on shareholder redemptions of Class B and Class 529B shares in the event of a shareholder redemption
within six years from the end of the calendar month of purchase. MFD receives all contingent deferred sales
charges. Contingent deferred sales charges imposed during the year ended September 30, 2004 were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred Sales
Charges Imposed $5,732 $148,979 $2,787 $-- $--
- ----------------------------------------------------------------------------------------------------------------
The fund has and may from time to time enter into contracts with program
managers and other parties that 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, which is calculated as a percentage of the fund's
average daily net assets is set periodically under the supervision of the
fund's Trustees. Prior to April 1, 2004, the fee was set at 0.11% of the fund's
average daily net assets. For the period April 1, 2004 through June 30, 2004,
the fee was set at 0.10% of the fund's average daily net assets. Effective July
1, 2004, the fund is charged up to 0.0861% of its average daily net assets. For
the year ended September 30, 2004, the fund paid MFSC a fee of $354,413 for
shareholder services which equated to 0.0992% of the fund's average daily net
assets. Also included in shareholder servicing costs are out-of-pocket
expenses, paid to MFSC, which amounted to $75,173 for the year ended September
30, 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
$599,021,738 and $446,104,309, 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 $459,215,699
----------------------------------------------------------
Gross unrealized appreciation $42,311,502
----------------------------------------------------------
Gross unrealized depreciation (14,676,755)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $27,634,747
----------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 9/30/04 Year ended 9/30/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 4,107,516 $51,494,984 7,729,510 $72,633,949
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (2,179,922) (27,535,296) (6,327,259) (58,671,983)
- ----------------------------------------------------------------------------------------------------------
Net change 1,927,594 $23,959,688 1,402,251 $13,961,966
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 2,831,033 $34,800,800 3,135,446 $30,018,328
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (2,191,259) (27,129,931) (2,139,454) (20,013,505)
- ----------------------------------------------------------------------------------------------------------
Net change 639,774 $7,670,869 995,992 $10,004,823
- ----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,026,389 $12,711,531 1,683,023 $16,160,057
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (596,090) (7,403,467) (1,471,064) (14,015,030)
- ----------------------------------------------------------------------------------------------------------
Net change 430,299 $5,308,064 211,959 $2,145,027
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 10,169,305 $127,364,640 8,266,066 $80,956,728
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 22,465 268,460 -- --
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (86,164) (1,077,151) (107,371) (1,041,371)
- ----------------------------------------------------------------------------------------------------------
Net change 10,105,606 $126,555,949 8,158,695 $79,915,357
- ----------------------------------------------------------------------------------------------------------
CLASS R1 SHARES
Shares sold 230,207 $2,780,682 34,114 $356,139
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 92 1,085 -- --
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (106,453) (1,310,117) (9,852) (102,385)
- ----------------------------------------------------------------------------------------------------------
Net change 123,846 $1,471,650 24,262 $253,754
- ----------------------------------------------------------------------------------------------------------
Period ended 9/30/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 30,506 $371,498
- ----------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 0*** 6
- ----------------------------------------------------------------------
Shares reacquired (14,262) (174,359)
- ----------------------------------------------------------------------
Net change 16,245 $197,145
- ----------------------------------------------------------------------
Year ended 9/30/04 Year ended 9/30/03
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 25,613 $315,099 23,852 $224,292
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (882) (12,742) (105) (944)
- ----------------------------------------------------------------------------------------------------------
Net change 24,731 $302,357 23,747 $223,348
- ----------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 5,024 $60,832 4,971 $46,623
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (8) (94) (22) (202)
- ----------------------------------------------------------------------------------------------------------
Net change 5,016 $60,738 4,949 $46,421
- ----------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 9,658 $118,556 3,666 $33,177
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (8) (99) (75) (772)
- ----------------------------------------------------------------------------------------------------------
Net change 9,650 $118,457 3,591 $32,405
- ----------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through September 30, 2003.
** For the period from the inception of Class R2 shares, October 31, 2003, through September 30, 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 Federal
Reserve funds 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 year ended September 30, 2004 was $2,065, and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended September 30, 2004.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with MFS fund sales (the term "MFS funds" means the
open-end registered management investment companies sponsored by MFS). 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 developed by an
independent distribution consultant. The brokerage allocation practices which
were the subject of this proceeding were discontinued by MFS in November 2003.
The agreement with the SEC is reflected in an order of the SEC. Pursuant to the
SEC order, on July 28, 2004, MFS transferred these settlement amounts to the
SEC, and those MFS funds entitled to these settlement amounts accrued an
estimate of their pro rata portion of these amounts. Once the final
distribution plan is approved by the SEC, these amounts will be distributed by
the SEC to the affected MFS funds. The SEC 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 SEC settlement order states that
MFS had in place policies designed to obtain best execution of all MFS fund
trades. As part of the settlement, MFS retained an independent compliance
consultant to review the completeness of its current policies and practices
regarding disclosure to MFS fund trustees and to MFS fund shareholders of
strategic alliances between MFS or its affiliates and broker-dealers and other
financial advisers who support the sale of MFS fund shares.
In addition, in February, 2004, MFS reached agreement with the 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 retail fund prospectuses
regarding market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS retail funds was
false and misleading because, although the prospectuses for those funds in the
regulators' view indicated that the MFS 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, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. 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 MFS 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 Board of
Trustees of the MFS retail funds, and acceptable to the SEC. MFS has further
agreed with 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 retained $250,000 and $750,000 was contributed
to the North American Securities Administrators Association's Investor
Protection Trust). In addition, under the terms of the February Settlements,
MFS is in the process of adopting certain governance changes and reviewing its
policies and procedures.
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 MFS 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 relating to market timing and related matters have been
transferred to, and consolidated before, the United States District Court for
the District of Maryland, as part of a multi-district litigation of market
timing and related claims involving several other fund complexes (In re Mutual
Funds Investment Litigation (Alger, Columbia, Janus, MFS, One Group, Putnam,
PIMCO), No. 1:04-md-15863 (transfer began March 19, 2004)). Four lawsuits
alleging improper brokerage allocation practices and excessive compensation are
pending in the United States District Court for the District of Massachusetts
(Forsythe v. Sun Life Financial Inc., et al., No. 04cv10584 (GAO) (March 25,
2004); Eddings v. Sun Life Financial Inc., et al., No. 04cv10764 (GAO) (April
15, 2004); Marcus Dumond, et al. v. Massachusetts Financial Servs. Co., et al.,
No. 04cv11458 (GAO) (May 4, 2004); and Koslow v. Sun Life Financial Inc., et
al., No. 04cv11019 (GAO) (May 20, 2004)). 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 funds, or (ii) permitted or
acquiesced in the improper use of fund assets by MFS to support the
distribution of MFS 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 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 MFS 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 MFS retail funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the MFS
retail funds, and transferred $50 million for distribution to affected MFS
funds to compensate those funds based upon the amount of brokerage commissions
allocated in recognition of MFS 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 MFS 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 MFS funds.
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust XI and Shareholders of
MFS Mid Cap Value Fund:
We have audited the accompanying statement of assets and liabilities of MFS Mid
Cap Value Fund (the Fund) (one of the portfolios comprising MFS Series Trust
XI), including the portfolio of investments, as of September 30, 2004, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights. Our procedures included confirmation of securities owned as of
September 30, 2004, by correspondence with the custodian and brokers or by
other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Mid Cap Value Fund at September 30, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the each of the periods
indicated therein, in conformity with U.S. generally accepted accounting
principles.
ERNST & YOUNG LLP
Boston, Massachusetts
November 10, 2004
- ------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- ------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust, as of November 10, 2004, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.) The
address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial
(born 10/20/63) President Services Company, Chief
Executive Officer, President,
Chief Investment Officer and
Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial
(born 08/08/46) Services Company, Chairman
(since February 2004);
Harvard Law School
(education), John Olin
Visiting Professor (since
July 2002); Secretary of
Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December
2002); Fidelity Investments,
Vice Chairman (June 2000 to
December 2001); Fidelity
Management & Research Company
(investment adviser),
President (March 1997 to July
2001); The Bank of New York
(financial services),
Director; Bell Canada
Enterprises (telecommunications),
Director; Telesat (satellite
communications), Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair of February 1992 Private investor; Eastern
(born 05/01/36) Trustees Enterprises (diversified
services company), Chairman,
Trustee and Chief Executive
Officer (until November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery;
Harvard Medical School,
Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service
provider), Vice Chairman/
Director (since April 2001);
Encinitos Ventures (private
investment company),
Principal (1997 to April
2001); Lincoln Electric
Holdings, Inc. (welding
equipment manufacturer),
Director; Southwest Gas
Corporation (natural gas
distribution company),
Director
William R. Gutow Trustee December 1993 Private investor and real
(born 09/27/41) estate consultant; Capitol
Entertainment Management
Company (video franchise),
Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group
(1997 to February 2001);
Borders Group, Inc. (book and
music retailer), Director;
Federal Realty Investment
Trust (real estate investment
trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes
(born 06/23/35) (attorneys), Partner
William J. Poorvu Trustee August 1982 Private investor; Harvard
(born 04/10/35) University Graduate School of
Business Administration,
Class of 1961 Adjunct
Professor in Entrepreneurship
Emeritus; CBL & Associates
Properties, Inc. (real estate
investment trust), Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President;
Wellfleet Investments
(investor in health care
companies), Managing General
Partner (since 1993);
Cambridge Nutraceuticals
(professional nutritional
products), Chief Executive
Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care
(born 04/25/46) industry consultant
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial
(born 10/20/63) Trustee Services Company, Chief
Executive Officer, President,
Chief Investment Officer and
Director
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial
(born 03/06/59) and Assistant Clerk Services Company, Senior Vice
President and Associate
General Counsel
Jeffrey N. Carp(3) Secretary and Clerk September 2004 Massachusetts Financial
(born 12/01/56) Services Company, Senior Vice
President, General Counsel
and Secretary (since April
2004); Hale and Dorr LLP (law
firm) (prior to April 2004)
James F. DesMarais(3) Assistant Secretary September 2004 Massachusetts Financial
(born 03/09/61) and Assistant Clerk Services Company, Assistant
General Counsel
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial
(born 10/01/53) Services Company, Vice
President (since April 2003);
Brown Brothers Harriman &
Co., Senior Vice President
(November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior
Vice President (prior to
November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial
(born 09/18/63) Services Company, Vice
President (since August
2000); UAM Fund Services,
Senior Vice President (prior
to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial
(born 08/29/58) Services Company, Senior Vice
President (since July 2002);
The Bank of New York, Senior
Vice President (September
2000 to July 2002); Lexington
Global Asset Managers, Inc.,
Executive Vice President and
Chief Financial Officer
(prior to September 2000);
Lexington Funds, Chief
Financial Officer (prior to
September 2000)
Brian T. Hourihan(3) Assistant Secretary September 2004 Massachusetts Financial
(born 11/11/64) and Assistant Clerk Services Company, Vice
President, Senior Counsel and
Assistant Secretary (since
June 2004); Affiliated
Managers Group, Inc., Chief
Legal Officer/Centralized
Compliance Program (January
to April 2004); Fidelity
Research & Management
Company, Assistant General
Counsel (prior to January 2004)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial
(born 11/13/57) Services Company, Vice
President
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance Officer compliance services),
Principal (since June 2004);
CRA Business Strategies Group
(consulting services),
Executive Vice President
(April 2003 to June 2004);
David L. Babson & Co.
(investment adviser),
Managing Director, Chief
Administrative Officer and
Director (February 1997 to
March 2003)
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial
(born 06/12/60) Services Company, Senior Vice
President
- ----------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(3) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act), which is the principle federal law governing investment companies like the fund. The address of
MFS is 500 Boylston Street, Boston, Massachusetts 02116.
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 holds office until his or her successor is chosen
and qualified or until his or her earlier death, resignation, retirement or removal.
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 99 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -----------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741 200 Clarendon Street, Boston, MA 02116
PORTFOLIO MANAGER
Constantinos G. Mokas
QUARTERLY PORTFOLIO DISCLOSURE
Beginning with the fund's first and third fiscal quarters following this report, the fund will file a complete
schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and
third quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. The fund's Form N-Q is available on the EDGAR database on the Commission's Internet website at
http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference
Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at mfs.com.
- -------------------------------------------------------------------------------
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 investments 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
Variable annuities are offered through MFS/Sun Life Financial Distributors, Inc.
A PROSPECTUS FOR ANY MFS PRODUCT CAN BE OBTAINED FROM YOUR INVESTMENT
PROFESSIONAL. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE INVESTING AS IT
CONTAINS COMPLETE INFORMATION ON THE FUND'S INVESTMENT OBJECTIVE(s), THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THE FUND, AND THE FEES, CHARGES, AND EXPENSES
INVOLVED. THESE ELEMENTS, AS WELL AS OTHER INFORMATION CONTAINED IN THE
PROSPECTUS, SHOULD BE CONSIDERED CAREFULLY BEFORE INVESTING.
- ------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2004.
The fund has designated $2,791,060 as a capital gain dividend for the year
ended September 30, 2004.
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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 Web site at
http://www.sec. gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
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
(C) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
MDV-ANN-11/04 42M
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in the instructions to Form N-CSR that applies
to the Registrant's principal executive officer and principal financial and
accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Mr. J. Atwood Ives and Ms. Amy B. Lane, members of the Audit Committee, have
been determined by the Board of Trustees in their reasonable business judgment
to meet the definition of "audit committee financial expert" as such term is
defined in the instructions to Form N-CSR. In addition, Mr. Ives and Ms. Lane
are "independent" members of the Audit Committee as defined in the instructions
to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Items 4(a) through 4(d) and 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve
as independent accountants to certain series of the Registrant ("Funds"), and
Ernst & Young LLP ("E&Y") to serve in this capacity for another Fund of the
Registrant. In addition, Deloitte and E&Y may provide non-audit related services
to the Funds and/or to the Funds' investment adviser, Massachusetts Financial
Services Company ("MFS") and to various entities either controlling, controlled
by, or under common control with MFS that provide ongoing services to the Funds
("MFS Related Entities").
For the fiscal years ended September 30, 2004 and 2003, audit fees billed to the
Fund by Deloitte were as follows:
Registrant's
Audit Fees
Fees billed by Deloitte: 2004 2003
---- ----
MFS Union Standard Fund $29,400 $28,300
For the fiscal years ended September 30, 2004 and 2003, audit fees billed to the
Fund by E&Y were as follows:
Registrant's
Audit Fees
Fees billed by E&Y: 2004 2003
---- ----
MFS Mid Cap Value Fund $18,900 $13,130
For the fiscal years ended September 30, 2004 and 2003, fees billed by Deloitte
for audit-related, tax and other services provided to the Funds, MFS and MFS
Related Entities were as follows:
Total
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3) Non-Audit Fees
Fees billed by Deloitte: 2004 2003 2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ---- ---- ----
MFS Union Standard Fund $0 $0 $10,900 $5,500 $0 $0 $10,900 $5,500
To MFS and MFS Related Entities 859,500 181,500 35,000 37,629 $71,315 159,433 965,815 378,562
-------- -------- ------- ------- ------- -------- -------- --------
TOTAL FEES BILLED $859,500 $181,500 $45,900 $43,129 $71,315 $159,433 $976,715 $384,062
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For the fiscal years ended September 30, 2004 and 2003, fees billed by E&Y for audit-related, tax and other
services provided to the Registrant, MFS and MFS Related Entities were as follows:
Audit-Related
Fees(1) Tax Fees(2) All Other Fees(3) Total Non-Audit Fees
2004 2003 2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ---- ---- ----
Fees billed by E&Y:
MFS Mid Cap Value Fund $0 $0 $8,290 $2,465 $0 $0 $8,290 $2,465
To MFS and MFS Related Entities 0 0 7,000 0 0 0 7,000 0
--- --- ------- ------ --- --- ------- ------
TOTAL FEES BILLED $0 $0 $15,290 $2,465 $0 $0 $15,290 $2,465
----------------- --- --- ------- ------ --- --- ------- ------
(1) There were no Audit-Related services provided to the Funds by either Deloitte or E&Y for the fiscal years ended
September 30, 2004 and 2003. Audit-Related Fees paid to Deloitte for MFS and MFS Related Entities includes fees for
internal control reviews. There were no Audit-Related services provided to MFS and MFS Related Entities by E&Y.
(2) Fees included in the Tax Fees category comprise all services performed by professional staff in the independent
accountant's tax division except those services related to the audit. For both Deloitte and E&Y this category includes
fees for tax compliance, tax planning, and tax advice. For Deloitte, tax compliance, tax advice, and tax planning
services include preparation of original and amended tax returns, and tax advice related to income recognition and
distribution policies. For E&Y, tax compliance, tax advice, and tax planning services include preparation of original
and amended tax returns, tax advice, and sales tax training.
(3) For Deloitte, All Other Fees include fees for services related to financial information system implementation,
consultation on internal cost allocations, consultation on allocation of monies pursuant to an administrative
proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, and analysis of
certain portfolio holdings verses investment styles. For E&Y, there were no All Other Fee services provided to the
Fund, MFS or MFS Related Entities for the fiscal years ended August 31, 2004 and 2003.
ITEM 4(E)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: Pre-approval is needed for all planned and
anticipated audit and permissible non-audit services rendered to the Funds and
all permissible non-audit services rendered to MFS or MFS Related Entities if
the services relate directly to the operations and/or financial reporting of the
Registrant. In the event such services arise between regular meetings of the
Audit Committee and it is not practical to seek pre-approval at the next regular
meeting of the Audit Committee, such services may be referred to the Chair of
the Audit Committee for approval; provided that, the Chair may not approve any
individual engagement for such services exceeding $50,000 or multiple
engagements for such services in the aggregate exceeding $100,000 between such
regular meetings of the Audit Committee. Any engagement approved by the Chair
between regular meetings of the Audit Committee shall be presented for
ratification by the entire Audit Committee at its next regularly scheduled
meeting.
ITEM 4(E)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Funds and MFS and MFS Related Entities disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
or (c)(7)(ii) of Rule 2-01 of Regulation S-X (which permits audit committee
approval after the start of the engagement with respect to services other than
audit review or attest services, if certain conditions are satisfied).
ITEM 4(F): Not applicable.
ITEM 4(H): Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments for each series of the Registrant is included as part
of the report to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Trustees of the Registrant has adopted procedures by which
shareholders may send communications, including recommendations for nominees to
the Registrant's Board, to the Board. Shareholders may mail written
communications to the Board to the attention of the Board of Trustees, MFS
Series Trust XI, Massachusetts Financial Services Company, 500 Boylston Street,
Boston, MA 02116, c/o Frank Tarantino, Independent Chief Compliance Officer of
the Fund. Shareholder communications must (i) be in writing and be signed by the
shareholder, (ii) identify the series of the Registrant to which they relate,
and (iii) identify the class and number of shares held by the shareholder.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a -3(c) under the Act) 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 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit: Code of Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(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 XI
By (Signature and Title)* ROBERT J. MANNING
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Robert J. Manning, President
Date: November 23, 2004
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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: November 23, 2004
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By (Signature and Title)* RICHARD M. HISEY
-------------------------------------------
Richard M. Hisey, Treasurer (Principal Financial
Officer and Accounting Officer)
Date: November 23, 2004
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* Print name and title of each signing officer under his or her signature.