UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4777
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MFS SERIES TRUST I
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
James F. DesMarais
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: August 31
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Date of reporting period: February 28, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) MANAGED SECTORS FUND 2/28/05
SEMIANNUAL REPORT
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M F S(SM)
INVESTMENT MANAGEMENT(R)
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
SEMIANNUAL REPORT
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 4
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MANAGEMENT REVIEW 5
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PERFORMANCE SUMMARY 8
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EXPENSE TABLE 13
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PORTFOLIO OF INVESTMENTS 15
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FINANCIAL STATEMENTS 19
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NOTES TO FINANCIAL STATEMENTS 31
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PROXY VOTING POLICIES AND INFORMATION 42
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QUARTERLY PORTFOLIO DISCLOSURE 42
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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]
Last summer and fall, I wrote to you about enhancements that MFS(R) was making
to its investment process. Our goal, as always, was to deliver strong
performance across all asset classes. I am now happy to report to you that 2004
was a very successful year for MFS, relative to our peers in the mutual fund
industry. While there will always be room for improvement, we believe the
enhancements we have made to our investment process resulted in significantly
improved performance across the MFS Family of Funds(R).
You may remember some of the enhancements I outlined last year.
They included
o increasing collaboration and information sharing among our investment
personnel across asset classes, through an Investment Management Committee
with members from our Domestic Equity, International Equity, Fixed Income,
and Quantitative Research teams
o increasing the number of analysts supporting our portfolio managers and
doubling the average investment experience of our domestic equity analyst
staff
o making additional use of our most-seasoned portfolio managers to mentor
research analysts
o combining more quantitative, top-down risk control and security analysis
with our traditional bottom-up research process
o opening a research office in Mexico City to complement our existing staff
in Boston, London, Singapore, and Tokyo
The effect of these enhancements, I believe, is evident in the 2004 performance
of our funds. For the 12 months ended December 31, 2004, 80% of MFS domestic
equity funds, 100% of MFS international equity funds, and 80% of MFS fixed-
income funds delivered results in the top half of their Lipper peer groups.
Our longer-term performance also benefited from our ongoing commitment to the
MFS Original Research(R) process: more than 75% of MFS funds were in the top
half of their respective Lipper categories over the 3-, 5-, and 10-year periods
ended December 31, 2004.
Of course, I cannot offer any guarantees that our performance will repeat
itself. Still, I am confident that the recent enhancements to our investment
process will continue to benefit shareholders in 2005 and beyond.
What I can tell you with certainty is that the way you manage your investments
will determine how well you take advantage of the performance that financial
markets deliver. Historically, individual investors have tended to underperform
the markets. For example, a 2003 study by DALBAR, Inc. showed that over the
nearly two decades from 1984 through 2002, the average U.S. stock investor
earned a 2.6% average annual return at a time when U.S. stocks, as measured by
the Standard & Poor's 500 Stock Index, delivered a 12.2% average annual
return.(1)
This huge discrepancy, in our view, occurred because nonprofessional investors
generally did not adhere to the basic principles followed by most professional
investors: allocate among asset classes, diversify within each asset class, and
rebalance one's portfolio on a routine schedule. I elaborated on this "ADR"
theme in fund reports over the last few months of 2004. For more information on
how to apply a Disciplined Diversification(SM) strategy to your portfolio using
the principles of ADR, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Web site, MFS.COM.
As always, we appreciate your confidence in MFS, and you can be sure of our
continued commitment to do the best we can to help you pursue your long-term
financial goals.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management
April 15, 2005
It is not possible to invest directly in an index.
Lipper rankings and performance are based on historical average annual returns
of Class A shares, and do not include any sales charges. Past performance is
no guarantee of future results.
Asset allocation and diversification cannot guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
(1) Source: DALBAR July 2003 update to its Quantitative Analysis of Investment
Behavior; DALBAR, Inc., is a financial-services market research firm
headquartered in Boston, MA.
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PORTFOLIO COMPOSITION
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PORTFOLIO STRUCTURE
Stocks 100.0%
TOP TEN HOLDINGS
Johnson & Johnson 5.5%
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Microsoft Corp. 4.2%
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Dell, Inc. 4.0%
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Cisco Systems, Inc. 3.6%
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Wyeth 3.2%
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Abbott Laboratories 3.0%
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Medtronic, Inc. 2.5%
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Caterpillar, Inc. 2.4%
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Oracle Corp. 2.3%
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Genzyme Corp. 2.3%
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SECTOR WEIGHTINGS
Technology 28.8%
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Health Care 28.7%
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Retailing 12.4%
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Leisure 9.0%
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Financial Services 8.5%
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Industrial Goods & Services 5.6%
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Consumer Staples 2.9%
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Transportation 2.6%
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Special Products & Services 1.5%
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Percentages are based on net assets as of 2/28/05.
The portfolio is actively managed, and current holdings may be different.
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MANAGEMENT REVIEW
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SUMMARY OF RESULTS
For the six months ended February 28, 2005, Class A shares of the MFS Managed
Sectors Fund provided a total return of 7.37%, not including sales charges. In
comparison, the fund's benchmark, the Russell 1000 Growth Index, returned
7.67%. The fund's investment objective is capital appreciation. The fund
invests, under normal market conditions, at least 65% of its net assets in
common stocks and related securities, such as preferred stock, convertible
securities and depositary receipts of companies in the following 13 sectors:
autos and housing; basic materials; consumer staples; defense and aerospace;
energy; financial services; health care; industrial goods and services;
leisure; retailing; technology; transportation; and utilities. The fund may
also invest in new sectors from time to time. The fund may invest a maximum of
50% of its net assets in any one sector. The fund generally focuses on
companies with larger market capitalizations, defined by the fund as companies
with market capitalizations equaling or exceeding $5 billion at the time of the
fund's investment.
MARKET ENVIRONMENT
Over the period, many measures of global economic growth, including employment
and corporate spending, continued to improve, although we feel that high oil
prices, rising short-term interest rates in the United States, a significant
decline in the value of the U.S. dollar against most major currencies, and
geopolitical uncertainty impacted markets. But, oil prices pulled back from
their record levels toward the end of 2004 and, in our view, investors seemed
to turn their attention to strong corporate profits and economic growth.
DETRACTORS FROM PERFORMANCE
Not holding any stocks in the energy and autos and housing sectors proved
disappointing for relative performance as both sectors outpaced the overall
return of the Russell 1000 Growth Index.
Security selection in the technology sector also dampened results. Our
overweighted positions in poor-performing Cisco Systems, which supplies data
networking products for the Internet, and digital data services firm Adtran
International Group* detracted from relative performance as did our decision
not to hold personal computer maker Apple Computer. Our position in chip giant
Intel* also held back results as we missed most of that stock's strong
performance during the period.
Although health care was one of our top contributing sectors relative to the
benchmark, two stocks detracted from returns. Our decision not to own strong-
performing UnitedHealth Group and our overweighted position in
biopharmaceutical company ImClone Systems hampered relative performance.
Stocks in other sectors that detracted from relative results included financial
concern American International Group,* media firm Univision Communications, and
retailer Kohl's.
The fund's cash position also held back relative performance. As with nearly
all mutual funds, this fund holds some cash to buy new holdings and to provide
liquidity. In a period when equity markets - as measured by the Russell 1000
Growth Index - rose measurably, holding any cash hurt performance relative to
our benchmark, which does not have a cash position.
CONTRIBUTORS TO PERFORMANCE
The retailing, health care, and industrial goods and services sectors were
among the fund's most significant contributors to relative performance over the
period. Stock selection was the major driver of positive results in all three
sectors.
In retailing, our decision to avoid Wal-Mart contributed to the fund's relative
returns as the stock decreased in value over the period. In health care, our
decision to underweight Pfizer* and avoid Merck also boosted relative results.
In the industrial goods and services sector, our position in motion control
equipment maker Parker Hannifin Corp.*, which was not held in the benchmark,
was a positive contributor.
Other factors that aided results included not owning financial services firm
Fannie Mae, and overweighting technology companies VERITAS Software, a data
management software provider, Internet security firm Symantec Corp.,
telecommunications equipment manufacturer Amphenol Corp., and business services
firm Getty Images*. Our position in cruise line operator Carnival Corp., which
was not held in the index, also contributed to the fund's relative performance
during the period.
Respectfully,
/s/ Margaret W. Adams /s/ S. Irfan Ali
Margaret W. Adams S. Irfan Ali
Portfolio Manager Portfolio Manager
/s/ Stephen Pesek
Stephen Pesek
Portfolio Manager
* Security was not held in the portfolio at period-end.
Note to shareholders: On or about May 18, 2005, sales of the MFS Managed
Sectors Fund shares and exchanges into this Fund are expected to be suspended.
MFS is taking this step in anticipation of reorganizing the fund into the MFS
Strategic Growth Fund on or about June 13, 2005.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or 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.
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PERFORMANCE SUMMARY THROUGH 2/28/05
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Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Performance results reflect the percentage change
in net asset value, including the reinvestment of any dividends and capital
gains distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR I SHARES, CALL 1-888-808-6374.) 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.
HIGH SHORT-TERM RETURNS FOR ANY PERIOD MAY BE AND LIKELY WERE ATTRIBUTABLE TO
FAVORABLE MARKET CONDITIONS DURING THAT PERIOD, WHICH MAY NOT BE REPEATABLE.
THE PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURNS
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Average annual
without sales charge
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Class
Share class inception date 6-mo 1-yr 3-yr 5-yr 10-yr
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A 9/20/93 7.37% 0.00% 0.45% -16.58% 5.89%
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B 12/29/86 7.06% -0.62% -0.21% -17.12% 5.19%
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C 6/01/00 7.00% -0.63% -0.25% -17.00% 5.27%
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I 1/02/97 7.52% 0.36% 0.78% -16.30% 6.19%
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Average annual
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Comparative benchmarks
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Russell 1000 Growth Index# 7.67% 1.13% 1.06% -9.71% 8.66%
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Average large-cap
growth fund+ 8.80% 1.73% 0.73% -8.98% 7.75%
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Average annual
with sales charge
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Share class 6-mo 1-yr 3-yr 5-yr 10-yr
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A 1.19% -5.75% -1.51% -17.56% 5.27%
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B 3.06% -4.59% -1.21% -17.39% 5.19%
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C 6.00% -1.62% -0.25% -17.00% 5.27%
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I Class shares do not have a sales charge. Please see Notes to Performance
Summary for details.
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Cumulative without
sales charge
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A 7.37% 0.00% 1.37% -59.59% 77.30%
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B 7.06% -0.62% -0.62% -60.89% 65.82%
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C 7.00% -0.63% -0.75% -60.60% 67.05%
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I 7.52% 0.36% 2.35% -58.91% 82.37%
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+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
Periods less than one year are actual, not annualized.
INDEX DEFINITION
Russell 1000 Growth Index - is constructed to provide a comprehensive barometer
for growth securities in the large-cap segment of the U.S. equity universe.
Companies in this index generally have higher price-to-book ratios and higher
forecasted growth values.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results including sales charge reflect the deduction of the maximum
5.75% sales charge. Class B results including sales charge reflect the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results including sales charge
(assuming redemption within one year from the end of the prior 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 I shares includes the performance of the fund's Class A shares
prior to their offering. Performance for C shares includes the performance of
the fund's Class B shares prior to their offering. For reporting periods ending
prior to March 31, 2004, when quoting performance for the fund's Class I
shares, the performance of this share class included the performance of the
fund's Class B shares, rather than Class A shares. The blending methodology
changed for reporting periods ending on or after March 31, 2004, because Class
A now has a 10 year performance history, and share class performance is being
blended to Class A shares based upon the similarity of share class operating
expenses. This change in blending methodology results in better performance for
Class I shares than it had under the prior blending methodology. For a
transitional period lasting until December 31, 2007, performance for Class I
shares under the prior methodology is available at mfs.com.
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 share class to which it is blended, and
lower performance for share classes with lower operating expenses than the
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.
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. For
example, the impact on the fund's performance (not including sales charge) for
the six-month period through the date shown would have been lower by
approximately 0.15%. The proceeds were paid to the fund on February 16, 2005.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
The portfolio is susceptible to market risk, which is the risk that the price
of a security held by the fund will fall due to changing economic, political or
market conditions or disappointing earnings results.
Prices of securities held in the portfolio react to the economic condition of
the company that issued the security. The portfolio's investments in an issuer
may rise and fall based on the issuer's actual and anticipated earnings,
changes in management and the potential for takeovers and acquisitions.
Companies may be less likely to pay dividends in difficult economic
environments.
The portfolio will allocate its investments among various equity sectors, based
upon judgments made by MFS. The portfolio could miss attractive investment
opportunities by underweighting sectors where there are significant returns,
and could lose value by overweighting sectors where there are significant
declines.
Because the portfolio may invest a relatively large percentage of its assets in
a single issuer as compared to other funds managed by MFS, the portfolio's
performance may be particularly sensitive to changes in the value of securities
of these issuers.
Because the portfolio may invest to a significant degree in securities of
companies in a limited number of sectors, the portfolio's performance is
particularly sensitive to changes in the value of securities in these sectors.
A decline in the value of these types of securities may result in a decline in
the portfolio's net asset value and your investment.
The portfolio is susceptible to over-the-counter risk. Over-the-counter (OTC)
transactions involve risks in addition to those associated with transactions in
securities traded on exchanges. OTC-listed companies may have limited product
lines, markets or financial resources. Many OTC stocks trade less frequently
and in smaller volume than exchange-listed stocks. The values of these stocks
may be more volatile than exchange-listed stocks, and the portfolio may
experience difficulty in buying and selling in these stocks at prevailing
market prices.
The portfolio will suffer a loss if it establishes a short position and the
value of the underlying security or index rises rather than falls. Because the
portfolio must cover its short position subject to prevailing market rates, the
potential loss is unlimited.
Investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject.
The portfolio is susceptible to emerging markets risk. Emerging markets are
generally defined as countries in the initial stages of their industrialization
cycles with low per capita income. The markets of emerging markets countries
are generally more volatile than the markets of developed countries with more
mature economies. All of the risks of investing in foreign securities described
above are heightened when investing in emerging markets countries.
The portfolio has engaged and may engage in active and frequent trading to
achieve its principal investment strategies. This may result in the realization
and distribution to shareholders of higher capital gains, as compared to a
portfolio with less-active trading policies, which would increase your tax
liability unless you hold your shares through a tax-deferred or exempt vehicle
(such as an Individual Retirement Account (IRA)). Frequent trading also
increases transaction costs, which could detract from the portfolio's
performance.
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
SEPTEMBER 1, 2004, THROUGH FEBRUARY 28, 2005.
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, September 1, 2004 through February
28, 2005.
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
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 9/01/04-
Ratio 9/01/04 2/28/05 2/28/05
- --------------------------------------------------------------------------------
Actual 1.53% $1,000 $1,074 $7.87
A ------------------------------------------------------------------------
Hypothetical* 1.53% $1,000 $1,017 $7.65
- --------------------------------------------------------------------------------
Actual 2.18% $1,000 $1,071 $11.19
B -------------------------------------------------------------------------
Hypothetical* 2.18% $1,000 $1,014 $10.89
- --------------------------------------------------------------------------------
Actual 2.17% $1,000 $1,070 $11.14
C ------------------------------------------------------------------------
Hypothetical* 2.17% $1,000 $1,014 $10.84
- --------------------------------------------------------------------------------
Actual 1.18% $1,000 $1,075 $6.07
I ------------------------------------------------------------------------
Hypothetical 1.18% $1,000 $1,019 $5.91
- --------------------------------------------------------------------------------
* 5% class return per year before expenses.
** 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.
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PORTFOLIO OF INVESTMENTS (unaudited) - 2/28/05
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 100.0%
- ----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------
Aerospace - 0.6%
- ----------------------------------------------------------------------------------------------
Northrop Grumman Corp. 21,500 $1,137,350
- ----------------------------------------------------------------------------------------------
Apparel Manufacturers - 2.0%
- ----------------------------------------------------------------------------------------------
Nike, Inc., "B"^ 21,000 $1,825,950
- ----------------------------------------------------------------------------------------------
Reebok International Ltd.^ 42,100 1,859,136
- ----------------------------------------------------------------------------------------------
$3,685,086
- ----------------------------------------------------------------------------------------------
Banks & Credit Companies - 6.2%
- ----------------------------------------------------------------------------------------------
American Express Co. 76,400 $4,137,060
- ----------------------------------------------------------------------------------------------
Citigroup, Inc. 84,400 4,027,568
- ----------------------------------------------------------------------------------------------
Countrywide Financial Corp.^ 98,800 3,433,300
- ----------------------------------------------------------------------------------------------
$11,597,928
- ----------------------------------------------------------------------------------------------
Biotechnology - 6.7%
- ----------------------------------------------------------------------------------------------
Amgen, Inc.* 55,800 $3,437,838
- ----------------------------------------------------------------------------------------------
Celgene Corp.^* 43,700 1,196,288
- ----------------------------------------------------------------------------------------------
Genentech, Inc.* 13,400 632,480
- ----------------------------------------------------------------------------------------------
Genzyme Corp.* 75,300 4,223,577
- ----------------------------------------------------------------------------------------------
Gilead Sciences, Inc.^* 53,700 1,855,335
- ----------------------------------------------------------------------------------------------
ImClone Systems, Inc.^* 26,500 1,172,890
- ----------------------------------------------------------------------------------------------
$12,518,408
- ----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 5.7%
- ----------------------------------------------------------------------------------------------
Comcast Corp., "A"^* 90,200 $2,936,010
- ----------------------------------------------------------------------------------------------
Time Warner, Inc.* 170,100 2,930,823
- ----------------------------------------------------------------------------------------------
Univision Communications, Inc., "A"^* 47,300 1,248,247
- ----------------------------------------------------------------------------------------------
Viacom, Inc., "B"^ 28,600 998,140
- ----------------------------------------------------------------------------------------------
Walt Disney Co.^ 94,000 2,626,360
- ----------------------------------------------------------------------------------------------
$10,739,580
- ----------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.3%
- ----------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 29,300 $3,187,840
- ----------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 20,300 1,189,174
- ----------------------------------------------------------------------------------------------
$4,377,014
- ----------------------------------------------------------------------------------------------
Business Services - 1.5%
- ----------------------------------------------------------------------------------------------
Fiserv, Inc.^* 50,400 $1,912,176
- ----------------------------------------------------------------------------------------------
Monster Worldwide, Inc.^* 30,700 885,695
- ----------------------------------------------------------------------------------------------
$2,797,871
- ----------------------------------------------------------------------------------------------
Computer Software - 11.1%
- ----------------------------------------------------------------------------------------------
Amdocs Ltd.* 32,100 $942,135
- ----------------------------------------------------------------------------------------------
Computer Associates International, Inc. 2,570 69,621
- ----------------------------------------------------------------------------------------------
Mercury Interactive Corp.^* 37,700 1,729,676
- ----------------------------------------------------------------------------------------------
Microsoft Corp. 309,200 7,785,656
- ----------------------------------------------------------------------------------------------
Oracle Corp.^* 338,900 4,375,199
- ----------------------------------------------------------------------------------------------
Symantec Corp.^* 118,300 2,603,783
- ----------------------------------------------------------------------------------------------
VERITAS Software Corp.^* 135,700 3,286,654
- ----------------------------------------------------------------------------------------------
$20,792,724
- ----------------------------------------------------------------------------------------------
Computer Software - Systems - 4.0%
- ----------------------------------------------------------------------------------------------
Dell, Inc.* 185,600 $7,440,704
- ----------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.9%
- ----------------------------------------------------------------------------------------------
Avon Products, Inc. 33,900 $1,449,903
- ----------------------------------------------------------------------------------------------
Procter & Gamble Co.^ 74,900 3,976,441
- ----------------------------------------------------------------------------------------------
$5,426,344
- ----------------------------------------------------------------------------------------------
Electrical Equipment - 2.2%
- ----------------------------------------------------------------------------------------------
Emerson Electric Co.^ 35,300 $2,341,096
- ----------------------------------------------------------------------------------------------
Tyco International Ltd. 27,900 934,092
- ----------------------------------------------------------------------------------------------
W.W. Grainger, Inc. 12,400 778,472
- ----------------------------------------------------------------------------------------------
$4,053,660
- ----------------------------------------------------------------------------------------------
Electronics - 5.1%
- ----------------------------------------------------------------------------------------------
Amphenol Corp., "A" 46,500 $1,855,350
- ----------------------------------------------------------------------------------------------
Analog Devices, Inc.^ 69,800 2,563,056
- ----------------------------------------------------------------------------------------------
KLA-Tencor Corp.^ 27,900 1,378,539
- ----------------------------------------------------------------------------------------------
Maxim Integrated Products, Inc. 24,600 1,058,292
- ----------------------------------------------------------------------------------------------
Texas Instruments, Inc. 99,800 2,641,706
- ----------------------------------------------------------------------------------------------
$9,496,943
- ----------------------------------------------------------------------------------------------
Food & Drug Stores - 1.9%
- ----------------------------------------------------------------------------------------------
CVS Corp. 69,600 $3,468,168
- ----------------------------------------------------------------------------------------------
Gaming & Lodging - 2.2%
- ----------------------------------------------------------------------------------------------
Carnival Corp.^ 74,000 $4,024,120
- ----------------------------------------------------------------------------------------------
General Merchandise - 2.5%
- ----------------------------------------------------------------------------------------------
Kohl's Corp.* 37,600 $1,799,912
- ----------------------------------------------------------------------------------------------
Target Corp. 58,200 2,957,724
- ----------------------------------------------------------------------------------------------
$4,757,636
- ----------------------------------------------------------------------------------------------
Health Maintenance Organizations - 1.5%
- ----------------------------------------------------------------------------------------------
WellPoint, Inc.* 22,500 $2,746,350
- ----------------------------------------------------------------------------------------------
Internet - 2.9%
- ----------------------------------------------------------------------------------------------
eBay, Inc.^* 65,200 $2,793,168
- ----------------------------------------------------------------------------------------------
Yahoo!, Inc.^* 82,000 2,646,140
- ----------------------------------------------------------------------------------------------
$5,439,308
- ----------------------------------------------------------------------------------------------
Machinery & Tools - 2.4%
- ----------------------------------------------------------------------------------------------
Caterpillar, Inc.^ 47,800 $4,543,390
- ----------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.3%
- ----------------------------------------------------------------------------------------------
HCA, Inc.^ 53,500 $2,525,735
- ----------------------------------------------------------------------------------------------
Medical Equipment - 6.0%
- ----------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.^* 59,000 $3,578,350
- ----------------------------------------------------------------------------------------------
Medtronic, Inc.^ 89,900 4,685,588
- ----------------------------------------------------------------------------------------------
Waters Corp.* 60,900 2,974,965
- ----------------------------------------------------------------------------------------------
$11,238,903
- ----------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.1%
- ----------------------------------------------------------------------------------------------
EMC Corp.^* 157,500 $1,993,950
- ----------------------------------------------------------------------------------------------
Network Appliance, Inc.^* 61,500 1,845,615
- ----------------------------------------------------------------------------------------------
$3,839,565
- ----------------------------------------------------------------------------------------------
Pharmaceuticals - 13.2%
- ----------------------------------------------------------------------------------------------
Abbott Laboratories 121,200 $5,573,988
- ----------------------------------------------------------------------------------------------
Eli Lilly & Co. 50,200 2,811,200
- ----------------------------------------------------------------------------------------------
Johnson & Johnson 158,100 10,371,360
- ----------------------------------------------------------------------------------------------
Wyeth 148,400 6,057,688
- ----------------------------------------------------------------------------------------------
$24,814,236
- ----------------------------------------------------------------------------------------------
Pollution Control - 0.4%
- ----------------------------------------------------------------------------------------------
Waste Management, Inc.^ 25,000 $731,000
- ----------------------------------------------------------------------------------------------
Restaurants - 1.1%
- ----------------------------------------------------------------------------------------------
YUM! Brands, Inc. 43,600 $2,126,808
- ----------------------------------------------------------------------------------------------
Specialty Stores - 6.0%
- ----------------------------------------------------------------------------------------------
Abercrombie & Fitch Co., "A" 56,200 $3,017,940
- ----------------------------------------------------------------------------------------------
Best Buy Co., Inc. 53,100 2,868,462
- ----------------------------------------------------------------------------------------------
Lowe's Cos., Inc.^ 27,800 1,634,084
- ----------------------------------------------------------------------------------------------
PETsMART, Inc.^ 41,700 1,271,850
- ----------------------------------------------------------------------------------------------
Staples, Inc.^ 78,900 2,486,928
- ----------------------------------------------------------------------------------------------
$11,279,264
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 3.6%
- ----------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 389,800 $6,790,316
- ----------------------------------------------------------------------------------------------
Trucking - 2.6%
- ----------------------------------------------------------------------------------------------
FedEx Corp. 29,500 $2,884,510
- ----------------------------------------------------------------------------------------------
United Parcel Service, Inc., "B" 26,400 2,045,736
- ----------------------------------------------------------------------------------------------
$4,930,246
- ----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $165,636,048) $187,318,657
- ----------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 15.2%
- ----------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 28,360,474 $28,360,474
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $193,996,522) $215,679,131
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (15.2)% (28,526,311)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $187,152,820
- ----------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/28/05
ASSETS
Investments, at value, including $27,740,318 of securities
on loan (identified cost, $193,996,522) $215,679,131
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 2,493,869
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 26,729
- --------------------------------------------------------------------------------------------------
Interest and dividends receivable 205,520
- --------------------------------------------------------------------------------------------------
Other assets 2,856
- --------------------------------------------------------------------------------------------------
Total assets $218,408,105
- --------------------------------------------------------------------------------------------------
LIABILITIES
Payable to custodian $62,330
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 2,059,643
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 512,559
- --------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 28,360,474
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 11,633
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 48,505
- --------------------------------------------------------------------------------------------------
Distribution and service fee 7,236
- --------------------------------------------------------------------------------------------------
Administrative fee 174
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 192,731
- --------------------------------------------------------------------------------------------------
Total liabilities $31,255,285
- --------------------------------------------------------------------------------------------------
Net assets $187,152,820
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $449,842,713
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments 21,682,609
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (284,444,996)
- --------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income 72,494
- --------------------------------------------------------------------------------------------------
Net assets $187,152,820
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 22,997,080
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $150,268,522
- --------------------------------------------------------------------------------------------------
Shares outstanding 18,415,979
- --------------------------------------------------------------------------------------------------
Net asset value per share $8.16
- --------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$8.16) $8.66
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $33,810,158
- --------------------------------------------------------------------------------------------------
Shares outstanding 4,205,659
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.04
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $919,495
- --------------------------------------------------------------------------------------------------
Shares outstanding 115,621
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.95
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $2,154,645
- --------------------------------------------------------------------------------------------------
Shares outstanding 259,821
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $8.29
- --------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A,
Class B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- --------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund operations.
SIX MONTHS ENDED 2/28/05
NET INVESTMENT INCOME
Income
- --------------------------------------------------------------------------------------------------
Dividends $1,730,000
- --------------------------------------------------------------------------------------------------
Interest 29,921
- --------------------------------------------------------------------------------------------------
Total investment income $1,759,921
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $733,728
- --------------------------------------------------------------------------------------------------
Trustees' compensation 9,673
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 250,965
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 273,497
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 180,423
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 5,519
- --------------------------------------------------------------------------------------------------
Administrative fee 5,422
- --------------------------------------------------------------------------------------------------
Custodian fee 31,209
- --------------------------------------------------------------------------------------------------
Printing 39,364
- --------------------------------------------------------------------------------------------------
Postage 5,465
- --------------------------------------------------------------------------------------------------
Auditing fees 39,515
- --------------------------------------------------------------------------------------------------
Legal fees 3,663
- --------------------------------------------------------------------------------------------------
Miscellaneous 32,684
- --------------------------------------------------------------------------------------------------
Total expenses $1,611,127
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (6,273)
- --------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (212)
- --------------------------------------------------------------------------------------------------
Net expenses $1,604,642
- --------------------------------------------------------------------------------------------------
Net investment income $155,279
- --------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $4,419,364
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- --------------------------------------------------------------------------------------------------
Investments $9,531,092
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $13,950,456
- --------------------------------------------------------------------------------------------------
Change in net assets from operations $14,105,735
- --------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/28/05 8/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $155,279 $(1,215,696)
- -------------------------------------------------------- ------------ -------------
Net realized gain (loss) on investments 4,419,364 22,293,998
- -------------------------------------------------------- ------------ -------------
Net unrealized gain (loss) on investments 9,531,092 (19,329,122)
- -------------------------------------------------------- ------------ -------------
Change in net assets from operations $14,105,735 $1,749,180
- -------------------------------------------------------- ------------ -------------
Change in net assets from fund share transactions $(22,359,325) $(36,010,984)
- -------------------------------------------------------- ------------ -------------
Redemption fees $44 $3
- -------------------------------------------------------- ------------ -------------
Total change in net assets $(8,253,546) $(34,261,801)
- -------------------------------------------------------- ------------ -------------
NET ASSETS
At beginning of period $195,406,366 $229,668,167
- --------------------------------------------------------------------------------------------------
At end of period (including accumulated undistributed
net investment income of $72,494 and accumulated net
investment loss of $82,785, respectively) $187,152,820 $195,406,366
- --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the fund's operation). Certain information reflects financial
results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------------
CLASS A 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $7.60 $7.58 $6.70 $8.60 $21.45 $14.95
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment income
(loss)(S) $0.01 $(0.03) $(0.04) $(0.07) $(0.06) $(0.11)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investments and foreign
currency 0.55 0.05 0.92 (1.83) (9.44) 8.73
- ------------------------------ ------ ------ ------ ------ ------ ------
Total from investment
operations $0.56 $0.02 $0.88 $(1.90) $(9.50) $8.62
- ------------------------------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(2.78) $(2.12)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency
transactions -- -- -- -- (0.57) --
- ------------------------------ ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $-- $-- $-- $-- $(3.35) $(2.12)
- ------------------------------ ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ------------------------------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period $8.16 $7.60 $7.58 $6.70 $8.60 $21.45
- ------------------------------ ------ ------ ------ ------ ------ ------
Total return (%)(+)& 7.37++ 0.26^^^ 13.13^^ (22.09) (50.32) 60.26
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------------
CLASS A (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.53+ 1.43 1.51 1.46 1.36 1.32
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.28+ (0.42) (0.57) (0.92) (0.43) (0.56)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 47 84 72 282 319 495
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $150,269 $155,466 $180,237 $183,797 $276,026 $600,531
- -------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been
incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.01* $(0.03)* $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE
NET ASSETS):
Expenses## 1.53+* 1.43* -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.28+* (0.42)* -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
+ 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 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 $0.02 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 August 31, 2003 would have been 0.34% lower.
^^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings Footnote. The non-recurring accrual resulted in an increase in the net asset value of
$0.01 per share based on shares outstanding on the day the proceeds were recorded. Excluding the effect of this accrual
from the ending net asset value per share, total return for the year ended August 31, 2004 would have been 0.14% lower.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS B 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $7.51 $7.54 $6.71 $8.67 $21.55 $15.04
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01) $(0.08) $(0.08) $(0.13) $(0.14) $(0.24)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.54 0.05 0.91 (1.83) (9.52) 8.78
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.53 $(0.03) $0.83 $(1.96) $(9.66) $8.54
- ---------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(2.68) $(2.03)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- -- (0.54) --
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $-- $(3.22) $(2.03)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to paid-in
capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ---------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end
of period $8.04 $7.51 $7.54 $6.71 $8.67 $21.55
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 7.06++ (0.40)^^^ 12.37^^ (22.61) (50.64) 59.15
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS B (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.18+ 2.08 2.16 2.11 2.01 1.97
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.37)+ (1.08) (1.22) (1.57) (1.08) (1.20)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 47 84 72 282 319 495
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $33,810 $36,652 $45,982 $49,995 $87,876 $243,420
- -------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been
incurred by the fund, the net investment loss per share and the ratios would have been:
Net investment loss $(0.01)* $(0.08)* $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.18+* 2.08* -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.37)+* (1.08)* -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
+ 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 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 $0.02 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 August 31, 2003 would have been 0.35% lower.
^^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings Footnote. The non-recurring accrual resulted in an increase in the net asset value of
$0.01 per share based on shares outstanding on the day the proceeds were recorded. Excluding the effect of this accrual
from the ending net asset value per share, total return for the year ended August 31, 2004 would have been 0.13% lower.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEARS ENDED 8/31
SIX MONTHS PERIOD
ENDED ------------------------------------------------------ ENDED
CLASS C 2/28/05 2004 2003 2002 2001 8/31/00**
(UNAUDITED)
Net asset value, beginning
of period $7.43 $7.46 $6.65 $8.57 $21.57 $19.02***
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01) $(0.08) $(0.08) $(0.13) $(0.12) $(0.08)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency 0.53 0.05 0.89 (1.79) (9.47) 2.63
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.52 $(0.03) $0.81 $(1.92) $(9.59) $2.55
- ---------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(2.83) $--
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- -- (0.58) --
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $-- $(3.41) $--
- ---------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to paid-in
capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ---------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $7.95 $7.43 $7.46 $6.65 $8.57 $21.57
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 7.00++ (0.40)^^^ 12.18^^ (22.40) (50.62) 13.41++***
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ------------------------------------------------------ ENDED
CLASS C (CONTINUED) 2/28/05 2004 2003 2002 2001 8/31/00**
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.17+ 2.08 2.16 2.11 2.01 1.97+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.32)+ (1.06) (1.22) (1.57) (1.08) (1.53)+
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 47 84 72 282 319 495
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $919 $1,154 $1,199 $1,240 $1,505 $1,022
- -------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been
incurred by the fund, the net investment loss per share and the ratios would have been:
Net investment loss $(0.01)* $(0.08)* $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.17+* 2.08* -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.32)+* (1.06)* -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
** For the period from the inception of Class C shares, June 1, 2000, through August 31, 2000.
*** The net asset value and total return previously reported as $19.62 and 9.94%, respectively, has been revised to reflect
the net asset value from the day prior to the class' inception date. The net asset value and total return previously
reported was from the inception date, the date the share class was first available to public shareholders.
+ 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 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 $0.02 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 August 31, 2003 would have been 0.35% lower.
^^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings Footnote. The non-recurring accrual resulted in an increase in the net asset value of
$0.01 per share based on shares outstanding on the day the proceeds were recorded. Excluding the effect of this accrual
from the ending net asset value per share, total return for the year ended August 31, 2004 would have been 0.13% lower.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------------------------------------
CLASS I 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $7.71 $7.66 $6.75 $8.64 $21.54 $14.99
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment income (loss)(S) $0.03 $(0.01) $(0.01) $(0.05) $(0.01) $(0.04)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.55 0.06 0.92 (1.84) (9.47) 8.76
- ------------------------------------ ------ ------ ------ ------ ------ ------
Total from investment operations $0.58 $0.05 $0.91 $(1.89) $(9.48) $8.72
- ------------------------------------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(2.84) $(2.17)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- (0.58) --
- ------------------------------------ ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $-- $-- $-- $-- $(3.42) $(2.17)
- ------------------------------------ ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ------------------------------------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $8.29 $7.71 $7.66 $6.75 $8.64 $21.54
- ------------------------------------ ------ ------ ------ ------ ------ ------
Total return (%)& 7.52++ 0.65^^^ 13.48^^ (21.88) (50.14) 60.76
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------------------------------------
CLASS I (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.18+ 1.08 1.16 1.11 1.01 0.97
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.64+ (0.07) (0.22) (0.57) (0.08) (0.21)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 47 84 72 282 319 495
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $2,155 $2,134 $2,250 $2,070 $2,739 $6,418
- -------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been
incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.03* $(0.01)* $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.18+* 1.08* -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.64+* (0.07)* -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
+ 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 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 $0.02 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 August 31, 2003 would have been 0.35% lower.
^^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings Footnote. The non-recurring accrual resulted in an increase in the net asset value of
$0.01 per share based on shares outstanding on the day the proceeds were recorded. Excluding the effect of this accrual
from the ending net asset value per share, total return for the year ended August 31, 2004 would have been 0.14% lower.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
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(1) BUSINESS AND ORGANIZATION
MFS Managed Sectors Fund (the fund) is a diversified series of MFS Series Trust
I (the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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. Money market
mutual funds are valued at net asset value. Investment valuations, other
assets, and liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars based upon current exchange rates. 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.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the fund with indemnification against Borrower default. The
fund bears the risk of loss with respect to the investment of cash collateral.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or short-term securities. A portion of the income generated upon
investment of the collateral is remitted to the Borrowers, and the remainder is
allocated between the fund and the lending agent. On loans collateralized by
U.S. Treasury securities, a fee is received from the Borrower, and is allocated
between the fund and the lending agent. Income from securities lending is
included in interest income on the Statement of Operations. The dividend and
interest income earned on the securities loaned is accounted for in the same
manner as other dividend and interest income.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, 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). Effective April 1, 2005, the fund will no longer charge
a redemption fee. See the fund's prospectus for details. Any redemption fees
charged 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.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the statement of operations, or in unrealized gain/loss if the security is
still held by the fund.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. During the six months ended February 28, 2005, the fund's custodian fees
were reduced by $1,395 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the six months ended February 28, 2005, the fund's miscellaneous
expenses were reduced by $4,878 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.
The fund paid no distributions for the years ended August 31, 2004 and August
31, 2003.
As of August 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $288,484,439
----------------------------------------------------------
Unrealized appreciation (depreciation) 11,771,596
----------------------------------------------------------
Other temporary differences (82,785)
----------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on August 31, 2010 ($209,247,033) and
August 31, 2011 ($79,237,406).
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates are
generally due to differences in separate class expenses. Class B shares will
convert to Class A shares approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with MFS to
provide overall investment advisory and administrative services, and general
office facilities.
The management fee is computed daily and paid monthly at the following annual
rates:
First $2.5 billion of average net assets 0.75%
----------------------------------------------------------
Average net assets in excess of $2.5 billion 0.70%
----------------------------------------------------------
Management fees incurred for the six months ended February 28, 2005 were an
effective rate of 0.75% of average daily net assets on an annualized basis.
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). The fund has an
unfunded defined benefit plan for retired Independent Trustees and an unfunded
retirement benefit deferral plan for current Independent Trustees. Included in
Trustees' compensation is a net increase of $1,194 as a result of the change in
the fund's unfunded retirement benefit deferral plan for certain current
Independent Trustees and a pension expense of $2,687 for retired Independent
Trustees for the six months ended February 28, 2005.
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. On July 28,
2004, the fund accrued an estimate of the amount to be received pursuant to
this matter in the amount of $269,765, which resulted in an increase in net
asset value of $0.01 per share based on the shares outstanding on the day the
proceeds were recorded. The proceeds were paid to the fund on February 16,
2005.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. 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. The
fund paid MFS an administrative fee up to the following annual percentage rates
of the fund's average daily net assets:
BEGINNING OF
PERIOD THROUGH
EFFECTIVE DATE 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
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Next $2.5 billion 0.00832% 0.01206%
- -------------------------------------------------------------------------------
Next $2.5 billion 0.00032% 0.00056%
- -------------------------------------------------------------------------------
In excess of $7 billion 0.00000% 0.00000%
- -------------------------------------------------------------------------------
The March 1, 2005 rates were not effective during the current reporting period.
For the six months ended February 28, 2005, the fund paid MFS $5,422,
equivalent to 0.00554% 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
$2,808 for the six months ended February 28, 2005, 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 as compensation for services provided by MFD and financial
intermediaries in connection with the distribution and servicing of its shares.
One component of the plan is a distribution fee and another is a service fee
paid by MFD to financial intermediaries that enter into sales or service
agreements with MFD or its affiliates based on the average daily net assets of
accounts attributable to such intermediaries. 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 may retain all or a portion of the service fee, including for accounts for
which there is no financial intermediary of record. Service fees retained by
MFD for the six months ended February 28, 2005 amounted to:
CLASS A CLASS B CLASS C
Service Fee Retained by MFD $7,535 $765 $47
- -------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February
28, 2005 were as follows:
CLASS A CLASS B CLASS C
Effective Annual Percentage Rates 0.35% 1.00% 1.00%
- -------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within, for Class A shares, 12
months following the purchase, and, for Class C shares, the first year 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 of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended February
28, 2005 were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $754 $36,170 $240
- --------------------------------------------------------------------------------
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. For the beginning of the period through December 31, 2004, the
fund was charged up to 0.0861% of its average daily net assets. For the period
January 1, 2005 through February 28, 2005, the fund is charged up to 0.1035% of
its average daily net assets. For the six months ended February 28, 2005, the
fund paid MFSC a fee of $89,166 for shareholder services which equated to
0.0912% of the fund's average daily net assets. Effective March 1, 2005, the
fund is charged up to 0.1159% of its average daily net assets. Shareholder
service costs include out of pocket expenses and sub accounting services
expenses paid by MFSC on behalf of the fund and subsequently reimbursed to MFSC
which amounted to $120,254, and other costs paid by the fund directly to
unaffiliated vendors for the six months ended February 28, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$91,665,752 and $108,137,180, 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 $194,376,443
----------------------------------------------------------
Gross unrealized appreciation $23,607,021
----------------------------------------------------------
Gross unrealized depreciation (2,304,333)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $21,302,688
----------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 318,725 $2,568,669 1,200,290 $9,467,545
- --------------------------------------------------------------------------------
Shares reacquired (2,358,965) (19,105,242) (4,537,224) (35,764,681)
- --------------------------------------------------------------------------------
Net change (2,040,240) $(16,536,573) (3,336,934) $(26,297,136)
- --------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 138,120 $1,106,617 490,524 $3,845,853
- --------------------------------------------------------------------------------
Shares reacquired (811,700) (6,466,997) (1,712,739) (13,373,666)
- --------------------------------------------------------------------------------
Net change (673,580) $(5,360,380) (1,222,215) $(9,527,813)
- --------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 14,204 $112,269 46,113 $356,726
- --------------------------------------------------------------------------------
Shares reacquired (53,825) (430,189) (51,719) (401,707)
- --------------------------------------------------------------------------------
Net change (39,621) $(317,920) (5,606) $(44,981)
- --------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 6,513 $54,139 16,395 $129,961
- --------------------------------------------------------------------------------
Shares reacquired (23,521) (198,591) (33,274) (271,015)
- --------------------------------------------------------------------------------
Net change (17,008) $(144,452) (16,879) $(141,054)
- --------------------------------------------------------------------------------
(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 six months ended February 28, 2005 was $433, and
is included in miscellaneous expense. The fund had no significant borrowings
during the six months ended February 28, 2005.
(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. 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 intermediaries who support the sale of MFS
fund shares. 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. The
final distribution plan was approved by the SEC on January 21, 2005 and the
affected MFS funds received the payment on February 16, 2005.
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 open-end retail fund ("MFS
retail funds") 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 they
prohibited market timing, MFS did not limit trading activity in 11 domestic
large cap stock, high grade bond and money market retail funds. MFS' former
Chief Executive Officer and former President 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. These individuals 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, MFS Fund Distributors, Inc., MFS Service Center,
Inc., MFS Corporation Retirement Committee, Sun Life Financial Inc., various
MFS funds, certain current and/or former 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 ERISA
actions by participants in certain retirement plan accounts on behalf of those
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, Allianz Dresdner),
No. 1:04-md-15863 (transfer began March 19, 2004)). The market timing cases
related to the MFS complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM
(direct), Hammerslough v. MFS et al., Case No. 04-md-01620 (derivative) and
Anita Walker v. MFS et al., Case No. 1:04-CV-01758 (ERISA). The plaintiffs in
these consolidated lawsuits generally seek injunctive relief including removal
of the named Trustees, adviser and distributor, rescission of contracts and
12b-1 Plans, disgorgement of fees and profits, monetary damages, punitive
damages, attorney's fees and costs and other equitable and declaratory relief.
Two 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) (a consolidated action) and Marcus Dumond, et al. v. Massachusetts
Financial Servs. Co., et al., No. 04cv11458 (GAO)). The plaintiffs in these
lawsuits generally seek compensatory damages, punitive damages, recovery of
fees, rescission of contracts, an accounting, restitution, declaratory relief,
equitable and/or injunctive relief and attorney's fees and costs. The various
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 (ii) received excessive compensation as fiduciaries to the MFS funds,
or (iii) 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. 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 certain 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 distributed $50 million 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.
(8) SUBSEQUENT EVENT
On April 5, 2005 the fund mailed a proxy statement/prospectus to shareholders
of record at March 21, 2005 requesting a vote on an Agreement and Plan of
Reorganization, whereby the Managed Sectors Fund would be reorganized into the
Strategic Growth Fund. The Agreement and Plan of Reorganization provides for
the transfer of the assets of the Managed Sectors Fund to the Strategic Growth
Fund and the assumption by the Strategic Growth Fund of the liabilities of the
Managed Sectors Fund in exchange solely for shares of beneficial interest in
the Strategic Growth Fund. Immediately following the transfer, the Strategic
Growth Fund shares received by the Managed Sectors Fund will be distributed to
shareholders, pro rata, and the Managed Sectors Fund will be liquidated and
terminated. Votes will be cast at a shareholder meeting scheduled for May 17,
2005. If approved, it is expected that the reorganization will occur on or
around June 13, 2005.
- -------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
- -------------------------------------------------------------------------------
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.
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.
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
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
MMS-SEM-4/05 50M
MFS(R) STRATEGIC GROWTH FUND 2/28/05
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
SEMIANNUAL REPORT
LETTER FROM THE CEO 1
------------------------------------------------------
PORTFOLIO COMPOSITION 4
------------------------------------------------------
MANAGEMENT REVIEW 5
------------------------------------------------------
PERFORMANCE SUMMARY 7
------------------------------------------------------
EXPENSE TABLE 12
------------------------------------------------------
PORTFOLIO OF INVESTMENTS 14
------------------------------------------------------
FINANCIAL STATEMENTS 20
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 45
------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 58
------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 58
------------------------------------------------------
CONTACT INFORMATION BACK COVER
------------------------------------------------------
- -------------------------------------------------------------------------------
LETTER FROM THE CEO
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Last summer and fall, I wrote to you about enhancements that MFS(R) was making
to its investment process. Our goal, as always, was to deliver strong
performance across all asset classes. I am now happy to report to you that 2004
was a very successful year for MFS, relative to our peers in the mutual fund
industry. While there will always be room for improvement, we believe the
enhancements we have made to our investment process resulted in significantly
improved performance across the MFS Family of Funds(R).
You may remember some of the enhancements I outlined last year.
They included
o increasing collaboration and information sharing among our investment
personnel across asset classes, through an Investment Management Committee
with members from our Domestic Equity, International Equity, Fixed Income,
and Quantitative Research teams
o increasing the number of analysts supporting our portfolio managers and
doubling the average investment experience of our domestic equity analyst
staff
o making additional use of our most-seasoned portfolio managers to mentor
research analysts
o combining more quantitative, top-down risk control and security analysis
with our traditional bottom-up research process
o opening a research office in Mexico City to complement our existing staff in
Boston, London, Singapore, and Tokyo
The effect of these enhancements, I believe, is evident in the 2004 performance
of our funds. For the 12 months ended December 31, 2004, 80% of MFS domestic
equity funds, 100% of MFS international equity funds, and 80% of MFS fixed-
income funds delivered results in the top half of their Lipper peer groups.
Our longer-term performance also benefited from our ongoing commitment to the
MFS Original Research(R) process: more than 75% of MFS funds were in the top
half of their respective Lipper categories over the 3-, 5-, and 10-year periods
ended December 31, 2004.
Of course, I cannot offer any guarantees that our performance will repeat
itself. Still, I am confident that the recent enhancements to our investment
process will continue to benefit shareholders in 2005 and beyond.
What I can tell you with certainty is that the way you manage your investments
will determine how well you take advantage of the performance that financial
markets deliver. Historically, individual investors have tended to underperform
the markets. For example, a 2003 study by DALBAR, Inc. showed that over the
nearly two decades from 1984 through 2002, the average U.S. stock investor
earned a 2.6% average annual return at a time when U.S. stocks, as measured by
the Standard & Poor's 500 Stock Index, delivered a 12.2% average annual
return.(1)
This huge discrepancy, in our view, occurred because nonprofessional investors
generally did not adhere to the basic principles followed by most professional
investors: allocate among asset classes, diversify within each asset class, and
rebalance one's portfolio on a routine schedule. I elaborated on this "ADR"
theme in fund reports over the last few months of 2004. For more information on
how to apply a Disciplined Diversification(SM) strategy to your portfolio using
the principles of ADR, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Web site, MFS.COM.
As always, we appreciate your confidence in MFS, and you can be sure of our
continued commitment to do the best we can to help you pursue your long-term
financial goals.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
April 15, 2005
It is not possible to invest directly in an index.
Lipper rankings and performance are based on historical average annual returns
of Class A shares, and do not include any sales charges. Past performance is no
guarantee of future results.
Asset allocation and diversification cannot guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
(1) Source: DALBAR July 2003 update to its Quantitative Analysis of Investment
Behavior; DALBAR, Inc., is a financial-services market research firm
headquartered in Boston, MA.
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
PORTFOLIO STRUCTURE
Stocks 97.8%
Cash & Other Net Assets 2.2%
TOP TEN HOLDINGS
Cisco Systems, Inc. 3.5%
--------------------------------------------
Microsoft Corp. 3.5%
--------------------------------------------
Johnson & Johnson 3.5%
--------------------------------------------
Wyeth 2.9%
--------------------------------------------
Dell, Inc. 2.7%
--------------------------------------------
Abbott Laboratories 2.1%
--------------------------------------------
PepsiCo, Inc. 2.1%
--------------------------------------------
Medtronic, Inc. 2.0%
--------------------------------------------
Oracle Corp. 1.8%
--------------------------------------------
Mercury Interactive Corp. 1.8%
--------------------------------------------
SECTOR WEIGHTINGS
Technology 31.4%
--------------------------------------------
Health Care 21.7%
--------------------------------------------
Leisure 12.3%
--------------------------------------------
Retailing 9.3%
--------------------------------------------
Consumer Staples 6.8%
--------------------------------------------
Financial Services 5.6%
--------------------------------------------
Industrial Goods & Services 3.7%
--------------------------------------------
Miscellaneous 3.0%
--------------------------------------------
Transportation 2.4%
--------------------------------------------
Utilities & Communications 0.9%
--------------------------------------------
Basic Materials 0.7%
--------------------------------------------
Percentages are based on net assets as of 2/28/05.
The portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
SUMMARY OF RESULTS
For the six months ended February 28, 2005, Class A shares of the MFS Strategic
Growth Fund provided a total return of 9.87%, not including sales charges. In
comparison, the fund's benchmark, the Russell 1000 Growth Index, returned 7.67%.
The fund's investment objective is capital appreciation. The fund invests, under
normal market conditions, at least 65% of its net assets in common stocks and
related securities, such as preferred stock, bonds, warrants, or rights
convertible into stock and depositary receipts for these securities, of
companies which MFS believes offer superior prospects for growth.
MARKET ENVIRONMENT
Over the period, many measures of global economic growth, including employment
and corporate spending, continued to improve, although we feel that high oil
prices, rising short-term interest rates in the United States, a significant
decline in the value of the U.S. dollar against most major currencies, and
geopolitical uncertainty impacted markets. But, oil prices pulled back from
their record levels toward the end of 2004 and, in our view, investors seemed to
turn their attention to strong corporate profits and economic growth.
CONTRIBUTORS TO PERFORMANCE
Stock selection and, to a lesser extent, our overweighted position in the
technology sector contributed to performance relative to the fund's benchmark,
the Russell 1000 Growth Index. VERITAS Software, Mercury Interactive, Symantec*,
Network Appliance, Marvell Technology and Amdocs were top relative contributors
in this group.
Stock selection in the health care sector also boosted the fund's relative
results. Underweighting Pfizer* and avoiding Merck (a constituent in the index)
helped as both stocks underperformed the benchmark. Similarly, avoiding poor
performing mortgage financing provider Fannie Mae, in the financial services
sector, yielded a positive contribution to relative performance.
Latin American mobile phone company America Movil was also among the fund's top
relative contributors.
DETRACTORS FROM PERFORMANCE
Our decision not to hold any stocks in the energy sector, a benchmark component
that outperformed the overall index, held back relative results.
Although the technology and health care sectors were positive contributors
overall, both sectors contained many of our top individual detractors. In health
care, holdings of biopharmaceutical company ImClone Systems and our decision not
to own UnitedHealth Group (an index constituent that outperformed the benchmark)
dampened relative results. In technology, not holding strong performing personal
computer maker Apple Computer and chip giant Intel held back relative returns
during the period as did our overweighted positions in digital data services
firm Adtran International Group* and Cisco Systems, a supplier of data
networking products for the Internet.
Stocks in other sectors that detracted from relative results included
broadcasting company Univision Communications, retailer Kohl's, and consumer
products firm Avon Products.
While it averaged less than 3% over the period, the fund's cash position held
back relative performance. As with nearly all portfolios, this fund holds some
cash to buy new holdings and to provide liquidity. In a period when equity
markets - as measured by the Russell 1000 Growth Index - rose, holding any cash
hurt relative performance. The index does not have a cash position.
Respectfully,
/s/ Margaret W. Adams /s/ S. Irfan Ali
Margaret Adams S. Irfan Ali
Portfolio Manager Portfolio Manager
*Security was not held in the portfolio at period-end.
The views expressed in this report are those of the portfolio management team
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.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/28/05
- -------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including the reinvestment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR I SHARES, CALL 1-888-808-6374.) MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CUURRENT
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. HIGH
SHORT-TERM RETURNS FOR ANY PERIOD MAY BE AND LIKELY WERE ATTRIBUTABLE TO
FAVORABLE MARKET CONDITIONS DURING THAT PERIOD, WHICH MAY NOT BE REPEATABLE. THE
PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/96 9.87% -0.38% 0.53% -10.32% 11.62%
- ------------------------------------------------------------------------------
B 4/11/97 9.53% -1.02% -0.12% -10.89% 10.99%
- ------------------------------------------------------------------------------
C 4/11/97 9.51% -1.02% -0.12% -10.89% 11.01%
- ------------------------------------------------------------------------------
I 1/02/97 10.08% -0.05% 0.88% -10.00% 11.96%
- ------------------------------------------------------------------------------
J 2/10/00 9.46% -1.03% -0.13% -10.89% 11.22%
- ------------------------------------------------------------------------------
R1** 12/31/02 9.77% -0.55% 0.41% -10.38% 11.58%
- ------------------------------------------------------------------------------
R2** 10/31/03 9.61% -0.77% 0.36% -10.40% 11.56%
- ------------------------------------------------------------------------------
529A 7/31/02 9.73% -0.66% 0.34% -10.42% 11.55%
- ------------------------------------------------------------------------------
529B 7/31/02 9.38% -1.25% -0.24% -10.73% 11.34%
- ------------------------------------------------------------------------------
529C 7/31/02 9.31% -1.31% -0.27% -10.75% 11.33%
- ------------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks(+)
- ------------------------------------------------------------------------------
Average large-cap
growth fund+ 8.80% 1.73% 0.73% -8.98% 5.77%
- ------------------------------------------------------------------------------
Russell 1000 Growth Index# 7.67% 1.13% 1.06% -9.71% 6.49%
- ------------------------------------------------------------------------------
- --------------------
Average annual
with sales charge
- --------------------
Share class
- ------------------------------------------------------------------------------
A 3.55% -6.11% -1.44% -11.37% 10.90%
- ------------------------------------------------------------------------------
B 5.53% -4.98% -1.13% -11.20% 10.99%
- ------------------------------------------------------------------------------
C 8.51% -2.01% -0.12% -10.89% 11.01%
- ------------------------------------------------------------------------------
J 6.17% -4.00% -1.13% -11.44% 10.85%
- ------------------------------------------------------------------------------
529A 3.42% -6.37% -1.62% -11.47% 10.83%
- ------------------------------------------------------------------------------
529B 5.38% -5.20% -1.22% -11.03% 11.34%
- ------------------------------------------------------------------------------
529C 8.31% -2.29% -0.27% -10.75% 11.33%
- ------------------------------------------------------------------------------
I, RI and R2 Class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 9.87% -0.38% 1.58% -41.99% 173.63%
- ------------------------------------------------------------------------------
B 9.53% -1.02% -0.37% -43.82% 159.70%
- ------------------------------------------------------------------------------
C 9.51% -1.02% -0.37% -43.82% 160.17%
- ------------------------------------------------------------------------------
I 10.08% -0.05% 2.66% -40.95% 181.22%
- ------------------------------------------------------------------------------
J 9.46% -1.03% -0.37% -43.83% 164.83%
- ------------------------------------------------------------------------------
R1** 9.77% -0.55% 1.25% -42.18% 172.73%
- ------------------------------------------------------------------------------
R2** 9.61% -0.77% 1.09% -42.27% 172.31%
- ------------------------------------------------------------------------------
529A 9.73% -0.66% 1.03% -42.30% 172.13%
- ------------------------------------------------------------------------------
529B 9.38% -1.25% -0.72% -43.30% 167.42%
- ------------------------------------------------------------------------------
529C 9.31% -1.31% -0.81% -43.35% 167.18%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through February 28, 2005. Index information is from
January 2, 1996.
(+) Average annual rates of return.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
** Effective April 1, 2005, Class R1 shares have been renamed "Class R shares,"
and Class R2 shares have been renamed "Class R3 shares." In addition, on
April 1, 2005, the fund launched the following new R Classes: R1, R2, R4,
and R5. All references herein to Class R1 and Class R2 shares are as of
February 28, 2005, and do not reflect the renaming of Class R1 and Class R2
shares.
# Source: Standard & Poor's Micropal, Inc.
Periods less than one year are actual, not annualized.
INDEX DEFINITION
Russell 1000 Growth Index - is constructed to provide a comprehensive barometer
for growth securities in the large-cap segment of the U.S. equity universe.
Companies in this index generally have higher price-to-book ratios and higher
forecasted growth values.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results including sales charge reflect the deduction of the
maximum 5.75% sales charge. Class B and 529B results including sales charge
reflect the deduction of the applicable contingent deferred sales charge (CDSC),
which declines over six years from 4% to 0%. Class C and 529C results including
sales charge (assuming redemption within one year from the end of the prior
month of purchase) reflect the deduction of the 1% CDSC. Class I shares have no
sales charges and are available only to certain investors. Class J results,
including sales charge, reflect the deduction of the maximum 3% sales charge and
are available only to residents of Japan. On April 15, 2005, these shares were
terminated. Class R1 and R2 shares have no sales charges and are available only
to certain retirement plans. Class 529A, 529B, 529C shares are only available in
conjunction with qualified tuition programs, such as the MFS 529 Savings Plan.
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.
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 share class to which it is blended, and
lower performance for share classes with lower operating expenses than the 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.
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. The
proceeds were paid to the fund on February 16, 2005.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
The portfolio may invest in foreign and/or emerging markets securities, which
are more susceptible to risks relating to interest rates, currency exchange
rates, economic, and political conditions.
Market risk is the risk that the price of a security held by the fund will fall
due to changing economic, poltical or market conditions, or due to the financial
condition of the company which issued the security.
Company risk is the risk that prices of securities react to the economic
condition of the company that issued the security. The fund's investments in an
issuer may rise and fall based on the issuer's actual and anticipated earnings,
changes in management and the potential for takeovers and acquisitions.
Companies may be less likely to pay dividends in difficult economic
environments.
Growth companies risk is the risk that the prices of growth company securities
held by the fund, which are the fund's principal investment focus, will fall to
a greater extent than the overall equity markets (e.g., as represented by the
Standard & Poor's Composite 500 Index) due to changing economic political or
market conditions.
Over-the-counter (OTC) transactions involve risks in addition to those
associated with transactions in securities traded on exchanges. OTC listed
companies may have limited product lines, markets or financial resources. Many
OTC stocks trade less frequently and in smaller volume than exchange listed
stocks. The values of these stocks may be more volatile than exchange listed
stocks, and the fund may experience difficulty in buying and selling these
securities at a fair price.
The fund will suffer a loss if it takes a short position and the value of the
underlying security or index rises rather than falls. Because the fund must
cover its short position subject to prevailing market rates, the potential loss
is unlimited.
Please see the prospectus for further information regarding these and other risk
considerations.
- -------------------------------------------------------------------------------
EXPENSE TABLE
- -------------------------------------------------------------------------------
FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM SEPTEMBER 1, 2004,
THROUGH FEBRUARY 28, 2005.
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, September 1, 2004 through February 28,
2005.
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 9/01/04 2/28/05 9/01/04-2/28/05
- -------------------------------------------------------------------------------
Actual 1.24% $1,000 $1,099 $6.45
A -------------------------------------------------------------------------
Hypothetical* 1.24% $1,000 $1,019 $6.21
- -------------------------------------------------------------------------------
Actual 1.89% $1,000 $1,095 $9.82
B -------------------------------------------------------------------------
Hypothetical* 1.89% $1,000 $1,015 $9.44
- -------------------------------------------------------------------------------
Actual 1.89% $1,000 $1,095 $9.82
C -------------------------------------------------------------------------
Hypothetical* 1.89% $1,000 $1,015 $9.44
- -------------------------------------------------------------------------------
Actual 0.88% $1,000 $1,101 $4.58
I -------------------------------------------------------------------------
Hypothetical* 0.88% $1,000 $1,020 $4.41
- -------------------------------------------------------------------------------
Actual 1.89% $1,000 $1,095 $9.82
J -------------------------------------------------------------------------
Hypothetical* 1.89% $1,000 $1,015 $9.44
- -------------------------------------------------------------------------------
Actual 1.39% $1,000 $1,098 $7.23
R1 -------------------------------------------------------------------------
Hypothetical* 1.39% $1,000 $1,018 $6.95
- -------------------------------------------------------------------------------
Actual 1.64% $1,000 $1,096 $8.52
R2 -------------------------------------------------------------------------
Hypothetical* 1.64% $1,000 $1,017 $8.20
- -------------------------------------------------------------------------------
Actual 1.49% $1,000 $1,097 $7.75
529A -------------------------------------------------------------------------
Hypothetical* 1.49% $1,000 $1,017 $7.45
- -------------------------------------------------------------------------------
Actual 2.13% $1,000 $1,094 $11.06
529B -------------------------------------------------------------------------
Hypothetical* 2.13% $1,000 $1,014 $10.64
- -------------------------------------------------------------------------------
Actual 2.13% $1,000 $1,093 $11.05
529C -------------------------------------------------------------------------
Hypothetical* 2.13% $1,000 $1,014 $10.64
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** 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 (unaudited) - 2/28/05
- ---------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Stocks - 97.8%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.0%
- ---------------------------------------------------------------------------------------------------
Reebok International Ltd. 368,000 $16,250,880
- ---------------------------------------------------------------------------------------------------
Banks & Credit Companies - 3.4%
- ---------------------------------------------------------------------------------------------------
American Express Co. 451,500 $24,448,725
- ---------------------------------------------------------------------------------------------------
Citigroup, Inc. 477,957 22,808,108
- ---------------------------------------------------------------------------------------------------
Northern Trust Corp. 183,300 7,744,425
- ---------------------------------------------------------------------------------------------------
$55,001,258
- ---------------------------------------------------------------------------------------------------
Biotechnology - 5.5%
- ---------------------------------------------------------------------------------------------------
Amgen, Inc.* 254,100 $15,655,101
- ---------------------------------------------------------------------------------------------------
Genentech, Inc.* 165,500 7,811,600
- ---------------------------------------------------------------------------------------------------
Genzyme Corp.* 398,500 22,351,865
- ---------------------------------------------------------------------------------------------------
Gilead Sciences, Inc.* 407,200 14,068,760
- ---------------------------------------------------------------------------------------------------
ImClone Systems, Inc.* 340,500 15,070,530
- ---------------------------------------------------------------------------------------------------
MedImmune, Inc.* 532,400 12,820,192
- ---------------------------------------------------------------------------------------------------
$87,778,048
- ---------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 7.7%
- ---------------------------------------------------------------------------------------------------
Comcast Corp., "Special A"* 550,300 $17,532,558
- ---------------------------------------------------------------------------------------------------
Cox Radio, Inc., "A"* 108,800 1,747,328
- ---------------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR 156,800 10,105,760
- ---------------------------------------------------------------------------------------------------
News Corp., "A"^ 1,045,800 17,402,112
- ---------------------------------------------------------------------------------------------------
Time Warner, Inc.* 811,800 13,987,314
- ---------------------------------------------------------------------------------------------------
Univision Communications, Inc., "A"* 385,700 10,178,623
- ---------------------------------------------------------------------------------------------------
Viacom, Inc., "B" 830,213 28,974,434
- ---------------------------------------------------------------------------------------------------
Walt Disney Co. 661,600 18,485,104
- ---------------------------------------------------------------------------------------------------
Westwood One, Inc.* 206,500 4,509,960
- ---------------------------------------------------------------------------------------------------
$122,923,193
- ---------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.2%
- ---------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 51,300 $5,581,440
- ---------------------------------------------------------------------------------------------------
Mellon Financial Corp. 248,600 7,129,848
- ---------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 120,500 7,058,890
- ---------------------------------------------------------------------------------------------------
$19,770,178
- ---------------------------------------------------------------------------------------------------
Business Services - 2.5%
- ---------------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 1,050,800 $26,847,940
- ---------------------------------------------------------------------------------------------------
Fiserv, Inc.* 161,400 6,123,516
- ---------------------------------------------------------------------------------------------------
Getty Images, Inc.* 81,300 5,799,942
- ---------------------------------------------------------------------------------------------------
Monster Worldwide, Inc.* 55,900 1,612,715
- ---------------------------------------------------------------------------------------------------
$40,384,113
- ---------------------------------------------------------------------------------------------------
Chemicals - 0.7%
- ---------------------------------------------------------------------------------------------------
Monsanto Co. 201,800 $11,861,804
- ---------------------------------------------------------------------------------------------------
Computer Software - 10.8%
- ---------------------------------------------------------------------------------------------------
Amdocs Ltd.* 425,300 $12,482,555
- ---------------------------------------------------------------------------------------------------
Check Point Software Technologies Ltd.* 305,400 6,758,502
- ---------------------------------------------------------------------------------------------------
Citrix Systems, Inc.* 490,000 11,025,000
- ---------------------------------------------------------------------------------------------------
Computer Associates International, Inc. 14,373 389,365
- ---------------------------------------------------------------------------------------------------
Mercury Interactive Corp.* 636,700 29,211,796
- ---------------------------------------------------------------------------------------------------
Microsoft Corp. 2,187,700 55,086,286
- ---------------------------------------------------------------------------------------------------
Oracle Corp.* 2,270,800 29,316,028
- ---------------------------------------------------------------------------------------------------
VERITAS Software Corp.* 1,130,079 27,370,513
- ---------------------------------------------------------------------------------------------------
$171,640,045
- ---------------------------------------------------------------------------------------------------
Computer Software - Systems - 3.7%
- ---------------------------------------------------------------------------------------------------
Dell, Inc.* 1,086,100 $43,541,749
- ---------------------------------------------------------------------------------------------------
International Business Machines Corp. 174,200 16,127,436
- ---------------------------------------------------------------------------------------------------
$59,669,185
- ---------------------------------------------------------------------------------------------------
Consumer Goods & Services - 4.0%
- ---------------------------------------------------------------------------------------------------
Apollo Group, Inc., "A"* 86,300 $6,355,132
- ---------------------------------------------------------------------------------------------------
Avon Products, Inc. 252,700 10,807,979
- ---------------------------------------------------------------------------------------------------
Career Education Corp.* 60,600 2,069,490
- ---------------------------------------------------------------------------------------------------
Cintas Corp. 327,600 14,342,328
- ---------------------------------------------------------------------------------------------------
Gillette Co. 161,800 8,130,450
- ---------------------------------------------------------------------------------------------------
Procter & Gamble Co. 405,000 21,501,450
- ---------------------------------------------------------------------------------------------------
$63,206,829
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 3.3%
- ---------------------------------------------------------------------------------------------------
Cooper Industries Ltd., "A" 198,300 $13,756,071
- ---------------------------------------------------------------------------------------------------
Emerson Electric Co. 59,000 3,912,880
- ---------------------------------------------------------------------------------------------------
General Electric Co. 312,600 11,003,520
- ---------------------------------------------------------------------------------------------------
Tyco International Ltd. 737,804 24,701,678
- ---------------------------------------------------------------------------------------------------
$53,374,149
- ---------------------------------------------------------------------------------------------------
Electronics - 6.7%
- ---------------------------------------------------------------------------------------------------
Amphenol Corp., "A" 99,400 $3,966,060
- ---------------------------------------------------------------------------------------------------
Analog Devices, Inc. 508,900 18,686,808
- ---------------------------------------------------------------------------------------------------
Applied Materials, Inc.* 481,900 8,433,250
- ---------------------------------------------------------------------------------------------------
KLA-Tencor Corp. 190,200 9,397,782
- ---------------------------------------------------------------------------------------------------
Linear Technology Corp. 158,600 6,194,916
- ---------------------------------------------------------------------------------------------------
Marvell Technology Group Ltd.* 260,900 9,546,331
- ---------------------------------------------------------------------------------------------------
Maxim Integrated Products, Inc. 140,800 6,057,216
- ---------------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 294,000 8,683,290
- ---------------------------------------------------------------------------------------------------
PMC-Sierra, Inc.^* 1,091,200 10,857,440
- ---------------------------------------------------------------------------------------------------
Texas Instruments, Inc. 362,900 9,605,963
- ---------------------------------------------------------------------------------------------------
Xilinx, Inc.^ 513,700 15,513,740
- ---------------------------------------------------------------------------------------------------
$106,942,796
- ---------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.2%
- ---------------------------------------------------------------------------------------------------
CVS Corp. 383,700 $19,119,771
- ---------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 3.3%
- ---------------------------------------------------------------------------------------------------
PepsiCo, Inc. 622,600 $33,533,236
- ---------------------------------------------------------------------------------------------------
SYSCO Corp. 546,100 18,796,762
- ---------------------------------------------------------------------------------------------------
$52,329,998
- ---------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.4%
- ---------------------------------------------------------------------------------------------------
Carnival Corp. 289,600 $15,748,448
- ---------------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd.^ 153,300 7,243,425
- ---------------------------------------------------------------------------------------------------
$22,991,873
- ---------------------------------------------------------------------------------------------------
General Merchandise - 3.0%
- ---------------------------------------------------------------------------------------------------
Kohl's Corp.* 257,500 $12,326,525
- ---------------------------------------------------------------------------------------------------
Target Corp. 487,100 24,754,422
- ---------------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 220,376 11,373,605
- ---------------------------------------------------------------------------------------------------
$48,454,552
- ---------------------------------------------------------------------------------------------------
Insurance - 1.0%
- ---------------------------------------------------------------------------------------------------
American International Group, Inc. 231,689 $15,476,825
- ---------------------------------------------------------------------------------------------------
Internet - 3.2%
- ---------------------------------------------------------------------------------------------------
eBay, Inc.* 393,000 $16,836,120
- ---------------------------------------------------------------------------------------------------
IAC/InterActiveCorp^* 468,700 10,545,750
- ---------------------------------------------------------------------------------------------------
Yahoo!, Inc.* 735,400 23,731,358
- ---------------------------------------------------------------------------------------------------
$51,113,228
- ---------------------------------------------------------------------------------------------------
Leisure & Toys - 1.6%
- ---------------------------------------------------------------------------------------------------
Activision, Inc.* 203,300 $4,444,138
- ---------------------------------------------------------------------------------------------------
Electronic Arts, Inc.* 316,400 20,404,636
- ---------------------------------------------------------------------------------------------------
$24,848,774
- ---------------------------------------------------------------------------------------------------
Machinery & Tools - 0.4%
- ---------------------------------------------------------------------------------------------------
Illinois Tool Works, Inc. 67,200 $6,031,200
- ---------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.8%
- ---------------------------------------------------------------------------------------------------
HCA, Inc.^ 278,100 $13,129,101
- ---------------------------------------------------------------------------------------------------
Medical Equipment - 4.9%
- ---------------------------------------------------------------------------------------------------
Boston Scientific Corp.* 236,400 $7,720,824
- ---------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.* 127,700 7,745,005
- ---------------------------------------------------------------------------------------------------
Guidant Corp. 156,500 11,485,535
- ---------------------------------------------------------------------------------------------------
Medtronic, Inc. 618,800 32,251,856
- ---------------------------------------------------------------------------------------------------
St. Jude Medical, Inc.* 240,600 9,407,460
- ---------------------------------------------------------------------------------------------------
Waters Corp.* 178,800 8,734,380
- ---------------------------------------------------------------------------------------------------
$77,345,060
- ---------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.8%
- ---------------------------------------------------------------------------------------------------
EMC Corp.* 1,625,700 $20,581,362
- ---------------------------------------------------------------------------------------------------
Network Appliance, Inc.* 276,000 8,282,760
- ---------------------------------------------------------------------------------------------------
$28,864,122
- ---------------------------------------------------------------------------------------------------
Pharmaceuticals - 10.5%
- ---------------------------------------------------------------------------------------------------
Abbott Laboratories 738,400 $33,959,016
- ---------------------------------------------------------------------------------------------------
Allergan, Inc. 227,000 17,065,860
- ---------------------------------------------------------------------------------------------------
Eli Lilly & Co. 268,300 15,024,800
- ---------------------------------------------------------------------------------------------------
Johnson & Johnson 839,700 55,084,320
- ---------------------------------------------------------------------------------------------------
Wyeth 1,152,168 47,031,498
- ---------------------------------------------------------------------------------------------------
$168,165,494
- ---------------------------------------------------------------------------------------------------
Printing & Publishing - 0.6%
- ---------------------------------------------------------------------------------------------------
Lamar Advertising Co., "A"* 226,300 $8,891,327
- ---------------------------------------------------------------------------------------------------
Restaurants - 1.0%
- ---------------------------------------------------------------------------------------------------
Cheesecake Factory, Inc.^* 182,299 $6,203,635
- ---------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 202,800 9,107,748
- ---------------------------------------------------------------------------------------------------
$15,311,383
- ---------------------------------------------------------------------------------------------------
Specialty Stores - 4.1%
- ---------------------------------------------------------------------------------------------------
Abercrombie & Fitch Co., "A" 112,600 $6,046,620
- ---------------------------------------------------------------------------------------------------
Best Buy Co., Inc. 228,600 12,348,972
- ---------------------------------------------------------------------------------------------------
Home Depot, Inc. 178,100 7,127,562
- ---------------------------------------------------------------------------------------------------
Hot Topic, Inc.^* 22,220 474,619
- ---------------------------------------------------------------------------------------------------
Lowe's Cos., Inc. 369,600 21,725,088
- ---------------------------------------------------------------------------------------------------
Nordstrom, Inc. 97,200 5,225,472
- ---------------------------------------------------------------------------------------------------
Staples, Inc. 249,900 7,876,848
- ---------------------------------------------------------------------------------------------------
Tiffany & Co. 161,500 4,869,225
- ---------------------------------------------------------------------------------------------------
$65,694,406
- ---------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.9%
- ---------------------------------------------------------------------------------------------------
America Movil S.A. de C.V., ADR 56,600 $3,322,420
- ---------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR 416,009 10,936,877
- ---------------------------------------------------------------------------------------------------
$14,259,297
- ---------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 5.2%
- ---------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 3,162,700 $55,094,234
- ---------------------------------------------------------------------------------------------------
Comverse Technology, Inc.* 651,800 15,128,278
- ---------------------------------------------------------------------------------------------------
QUALCOMM, Inc. 208,000 7,510,880
- ---------------------------------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson, ADR^ 158,900 4,657,359
- ---------------------------------------------------------------------------------------------------
$82,390,751
- ---------------------------------------------------------------------------------------------------
Trucking - 2.4%
- ---------------------------------------------------------------------------------------------------
Expeditors International of Washington, Inc. 127,600 $7,083,076
- ---------------------------------------------------------------------------------------------------
FedEx Corp. 118,200 11,557,596
- ---------------------------------------------------------------------------------------------------
United Parcel Service, Inc., "B" 247,000 19,140,030
- ---------------------------------------------------------------------------------------------------
$37,780,702
- ---------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,542,531,367) $1,561,000,342
- ---------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 2.2%
- ---------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 35,153,221 $35,153,221
- ---------------------------------------------------------------------------------------------------
Repurchase Agreement - 1.7%
- ---------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ---------------------------------------------------------------------------------------------------
Morgan Stanley, 2.61%, dated 2/28/05, due 3/01/05, total
to be received $27,024,959 (secured by various U.S.
Treasury and Federal Agency obligations in a jointly
traded account), at Cost $27,023,000 $27,023,000
- ---------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,604,707,588) $1,623,176,563
- ---------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (1.7)% (27,577,119)
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,595,599,444
- ---------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
ADR = American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/28/05
ASSETS
Investments, at value, including $34,332,751 of
securities on loan (identified cost, $1,604,707,588) $1,623,176,563
- -----------------------------------------------------------------------------------------------------
Cash 274
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 20,557,409
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 4,962,003
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 1,556,338
- -----------------------------------------------------------------------------------------------------
Other assets 890
- -----------------------------------------------------------------------------------------------------
Total assets $1,650,253,477
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $13,819,392
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 4,850,331
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 35,153,221
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 85,800
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 234,959
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 58,084
- -----------------------------------------------------------------------------------------------------
Administrative fee 1,367
- -----------------------------------------------------------------------------------------------------
Program manager fee 19
- -----------------------------------------------------------------------------------------------------
Administrative service fee 16
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 450,844
- -----------------------------------------------------------------------------------------------------
Total liabilities $54,654,033
- -----------------------------------------------------------------------------------------------------
Net assets $1,595,599,444
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $2,740,661,686
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 18,472,055
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (1,164,198,989)
- -----------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income 664,692
- -----------------------------------------------------------------------------------------------------
Net assets $1,595,599,444
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 87,978,952
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $545,371,784
- -----------------------------------------------------------------------------------------------------
Shares outstanding 29,869,632
- -----------------------------------------------------------------------------------------------------
Net asset value per share $18.26
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$18.26) $19.37
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $400,586,634
- -----------------------------------------------------------------------------------------------------
Shares outstanding 22,934,169
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.47
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $101,418,631
- -----------------------------------------------------------------------------------------------------
Shares outstanding 5,795,569
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.50
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $538,405,775
- -----------------------------------------------------------------------------------------------------
Shares outstanding 28,825,466
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $18.68
- -----------------------------------------------------------------------------------------------------
Class J shares
Net assets $5,053,017
- -----------------------------------------------------------------------------------------------------
Shares outstanding 291,020
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $17.36
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/97.00X$17.36) $17.90
- -----------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $3,074,786
- -----------------------------------------------------------------------------------------------------
Shares outstanding 168,912
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $18.20
- -----------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $767,436
- -----------------------------------------------------------------------------------------------------
Shares outstanding 42,301
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $18.14
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class 529A shares
Net assets $457,587
- -----------------------------------------------------------------------------------------------------
Shares outstanding 25,195
- -----------------------------------------------------------------------------------------------------
Net asset value per share $18.16
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$18.16) $19.27
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $170,421
- -----------------------------------------------------------------------------------------------------
Shares outstanding 9,812
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.37
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $293,373
- -----------------------------------------------------------------------------------------------------
Shares outstanding 16,876
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.38
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares
are reduced. A contingent deferred sales charge may be imposed on redemptions of
Class A, Class B, Class C, Class 529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
SIX MONTHS ENDED 2/28/05
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------
Dividends $12,892,226
- -----------------------------------------------------------------------------------------------------
Interest 552,635
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (30,093)
- -----------------------------------------------------------------------------------------------------
Total investment income $13,414,768
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $5,938,466
- -----------------------------------------------------------------------------------------------------
Trustees" compensation 23,082
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 1,290,027
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 998,137
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 2,124,048
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 551,783
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class J) 27,439
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 6,616
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 1,098
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 756
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 795
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 1,205
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 540
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 199
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 301
- -----------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 549
- -----------------------------------------------------------------------------------------------------
Administrative fee 44,205
- -----------------------------------------------------------------------------------------------------
Custodian fee 164,519
- -----------------------------------------------------------------------------------------------------
Printing 134,700
- -----------------------------------------------------------------------------------------------------
Postage 27,546
- -----------------------------------------------------------------------------------------------------
Auditing fees 22,651
- -----------------------------------------------------------------------------------------------------
Legal fees 25,423
- -----------------------------------------------------------------------------------------------------
Miscellaneous 137,121
- -----------------------------------------------------------------------------------------------------
Total expenses $11,521,206
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (40,951)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (786,328)
- -----------------------------------------------------------------------------------------------------
Net expenses $10,693,927
- -----------------------------------------------------------------------------------------------------
Net investment income $2,720,841
- -----------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $9,185,668
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $9,185,668
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $136,349,855
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 813
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and
foreign currency translation $136,350,668
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $145,536,336
- -----------------------------------------------------------------------------------------------------
Change in net assets from operations $148,257,177
- -----------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/28/05 8/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $2,720,841 $(10,384,701)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 9,185,668 103,987,570
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 136,350,668 (92,871,441)
- ------------------------------------------------------------ ------------- ------------
Change in net assets from operations $148,257,177 $731,428
- ------------------------------------------------------------ ------------- ------------
Change in net assets from fund share transactions $(71,225,820) $28,208,131
- ------------------------------------------------------------ ------------- ------------
Redemption fees $465 $2,033
- ------------------------------------------------------------ ------------- ------------
Total change in net assets $77,031,822 $28,941,592
- ------------------------------------------------------------ ------------- ------------
NET ASSETS
At beginning of period $1,518,567,622 $1,489,626,030
- -------------------------------------------------------------------------------------------------------
At end of period (including accumulated undistributed
net investment income of $664,692 and accumulated net
investment loss of $2,056,149, respectively) $1,595,599,444 $1,518,567,622
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the fund's operation). Certain information reflects financial
results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all distributions) held for the entire period.
YEARS ENDED 8/31
SIX MONTHS
ENDED -----------------------------------------------------------------------------
CLASS A 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
period $16.62 $16.57 $14.03 $19.22 $39.19 $28.18
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income
(loss)(S) $0.04 $(0.08) $(0.07) $(0.13) $(0.17) $(0.28)
- ---------------------------------- -------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 1.60 0.13 2.61 (4.97) (15.53) 13.13
- ---------------------------------- ------- ------ ------ ------ ------ ------
Total from investment
operations $1.64 $0.05 $2.54 $(5.10) $(15.70) $12.85
- ---------------------------------- ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(4.08) $(1.84)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency
transactions -- -- -- (0.09) (0.19) --
- ---------------------------------- ------- ------ ------ ------ ------ ------
Total distributions declared
to shareholders $-- $-- $-- $(0.09) $(4.27) $(1.84)
- ---------------------------------- ------- ------ ------ ------ ------ ------
Redemption fees added to paid-
in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ---------------------------------- ------- ------ ------ ------ ------ ------
Net asset value, end of period $18.26 $16.62 $16.57 $14.03 $19.22 $39.19
- ---------------------------------- ------- ------ ------ ------ ------ ------
Total return (%)(+)& 9.87++ 0.30^^ 18.10^ (26.70) (42.93) 47.18
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------------
CLASS A (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.24+ 1.32 1.41 1.45 1.37 1.32
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.47+ (0.46) (0.46) (0.74) (0.67) (0.78)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 32 80 72 116 104 104
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $545,372 $563,761 $673,767 $731,283 $984,529 $1,356,313
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share
of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been
incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.03 $(0.09) $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.34+ 1.37 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.37+ (0.51) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
^ The fund's total return calculation includes 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 $0.01 per share based on shares outstanding on the day the
proceeds were received. Excluding the effect of this payment from the fund's ending net asset value per share, total
return for the year ended August 31, 2003 would have been 0.08% lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual resulted in an
increase in the net asset value of $0.01 per share based on shares outstanding on the day the proceeds were recorded.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------------
CLASS B 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
period $15.95 $16.00 $13.65 $18.80 $38.45 $27.75
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.02) $(0.19) $(0.16) $(0.24) $(0.33) $(0.49)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 1.54 0.14 2.51 (4.82) (15.23) 12.92
- -------------------------------- --------- ------ ------ ------ ------ ------
Total from investment
operations $1.52 $(0.05) $2.35 $(5.06) $(15.56) $12.43
- -------------------------------- --------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(3.91) $(1.73)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency
transactions -- -- -- (0.09) (0.18) --
- -------------------------------- --------- ------ ------ ------ ------ ------
Total distributions declared
to shareholders $-- $-- $-- $(0.09) $(4.09) $(1.73)
- -------------------------------- --------- ------ ------ ------ ------ ------
Redemption fees added to paid-
in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- -------------------------------- --------- ------ ------ ------ ------ ------
Net asset value, end of period $17.47 $15.95 $16.00 $13.65 $18.80 $38.45
- -------------------------------- --------- ------ ------ ------ ------ ------
Total return (%)& 9.53++ (0.31)^^ 17.22^ (27.08) (43.32) 46.23
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------------
CLASS B (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.89+ 1.97 2.06 2.10 2.02 1.97
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.18)+ (1.10) (1.12) (1.39) (1.32) (1.43)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 32 80 72 116 104 104
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $400,587 $427,364 $505,090 $490,326 $820,848 $1,419,290
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been
incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment loss $(0.02) $(0.19) $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.99+ 2.02 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.28)+ (1.15) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
^ The fund's total return calculation includes 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 $0.01 per share based on shares outstanding on the day the
proceeds were received. Excluding the effect of this payment from the fund's ending net asset value per share, total
return for the year ended August 31, 2003 would have been 0.09% lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual resulted in an
increase in the net asset value of $0.01 per share based on shares outstanding on the day the proceeds were recorded.
+ 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS C 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
period $15.98 $16.03 $13.67 $18.84 $38.54 $27.81
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.02) $(0.19) $(0.16) $(0.24) $(0.34) $(0.49)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 1.54 0.14 2.52 (4.84) (15.25) 12.96
- ------------------------------------ ------- ------ ------ ------ ------ ------
Total from investment operations $1.52 $(0.05) $2.36 $(5.08) $(15.59) $12.47
- ------------------------------------ ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(3.93) $(1.74)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- (0.09) (0.18) --
- ------------------------------------ ------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.09) $(4.11) $(1.74)
- ------------------------------------ ------- ------ ------ ------ ------ ------
Redemption fees added to paid-in
capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ------------------------------------ ------- ------ ------ ------ ------ ------
Net asset value, end of period $17.50 $15.98 $16.03 $13.67 $18.84 $38.54
- ------------------------------------ ------- ------ ------ ------ ------ ------
Total return (%)& 9.51++ (0.31)^^ 17.26^ (27.13) (43.29) 46.27
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS C (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.89+ 1.97 2.06 2.10 2.02 1.97
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.18)+ (1.10) (1.12) (1.39) (1.32) (1.43)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 32 80 72 116 104 104
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $101,419 $114,023 $141,307 $148,930 $270,903 $450,352
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been
incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment loss $(0.02) $(0.19) $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.99+ 2.02 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.28)+ (1.15) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
^ The fund's total return calculation includes 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 $0.01 per share based on shares outstanding on the day the
proceeds were received. Excluding the effect of this payment from the fund's ending net asset value per share, total
return for the year ended August 31, 2003 would have been 0.08% lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual resulted in an
increase in the net asset value of $0.01 per share based on shares outstanding on the day the proceeds were recorded.
+ 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ------------------------------------------------------------------------
CLASS I 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $16.97 $16.86 $14.24 $19.41 $39.53 $28.36
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income (loss)(S) $0.07 $(0.01) $(0.01) $(0.07) $(0.08) $(0.15)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.64 0.12 2.63 (5.01) (15.68) 13.22
- --------------------------------------- ------- ------ ------ ------ ------ ------
Total from investment operations $1.71 $0.11 $2.62 $(5.08) $(15.76) $13.07
- --------------------------------------- ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(4.17) $(1.90)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.09) (0.19) --
- --------------------------------------- ------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.09) $(4.36) $(1.90)
- --------------------------------------- ------- ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- --------------------------------------- ------- ------ ------ ------ ------ ------
Net asset value, end of period $18.68 $16.97 $16.86 $14.24 $19.41 $39.53
- --------------------------------------- ------- ------ ------ ------ ------ ------
Total return (%)& 10.08++ 0.65^^ 18.40^ (26.37) (42.73) 47.73
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ------------------------------------------------------------------------
CLASS I (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.88+ 0.96 1.06 1.10 1.02 0.97
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.80+ (0.06) (0.10) (0.39) (0.32) (0.43)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 32 80 72 116 104 104
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $538,406 $405,006 $163,758 $26,193 $28,455 $41,292
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been
incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.06 $(0.02) $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.98+ 1.01 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.70+ (0.11) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
^ The fund's total return calculation includes 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 $0.01 per share based on shares outstanding on the day the
proceeds were received. Excluding the effect of this payment from the fund's ending net asset value per share, total
return for the year ended August 31, 2003 would have been 0.09% lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual resulted in an
increase in the net asset value of $0.01 per share based on shares outstanding on the day the proceeds were recorded.
+ 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ------------------------------------------------------- ENDED
CLASS J 2/28/05 2004 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning
of period $15.86 $15.91 $13.56 $18.69 $38.46 $35.94
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss $(0.01) $(0.18) $(0.16) $(0.24) $(0.34) $(0.37)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.51 0.13 2.51 (4.80) (15.19) 2.89
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total from investment operations $1.50 $(0.05) $2.35 $(5.04) $(15.53) $2.52
- --------------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(4.06) $--
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.09) (0.18) --
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.09) $(4.24) $--
- --------------------------------------- -------- ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- --------------------------------------- -------- ------ ------ ------ ------ ------
Net asset value, end of period $17.36 $15.86 $15.91 $13.56 $18.69 $38.46
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total return (%)(+)& 9.46++ (0.31)^^ 17.33^ (27.13) (43.31) 7.01++
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
YEARS ENDED 8/31
SIX MONTHS PERIOD
ENDED ------------------------------------------------------- ENDED
CLASS J (CONTINUED) 2/28/05 2004 2003 2002 2001 8/31/00*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.89+ 1.97 2.06 2.10 2.02 1.97+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.17)+ (1.10) (1.12) (1.39) (1.32) (1.43)+
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 32 80 72 116 104 104
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $5,053 $5,363 $5,119 $4,744 $6,003 $8,551
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been
incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment loss $(0.02) $(0.19) $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.99+ 2.02 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.27)+ (1.15) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class J shares, December 31, 1999, through August 31, 2000. For performance
calculation purposes, the Class J inception date was changed from December 31, 1999 to February 10, 2000 to reflect the
date of the initial sale of Class J shares. As a result, the total return and the beginning net asset value have been
restated.
^ The fund's total return calculation includes 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 $0.01 per share based on shares outstanding on the day the
proceeds were received. Excluding the effect of this payment from the fund's ending net asset value per share, total
return for the year ended August 31, 2003 would have been 0.09% lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual resulted in an
increase in the net asset value of $0.01 per share based on shares outstanding on the day the proceeds were recorded.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class J shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 2/28/05 8/31/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $16.58 $16.55 $13.92###
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $0.03 $(0.09) $(0.06)
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.59 0.12 2.69
- --------------------------------------------------------------- ------- ------ ------
Total from investment operations $1.62 $0.03 $2.63
- --------------------------------------------------------------- ------- ------ ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $--
- --------------------------------------------------------------- ------- ------ ------
Net asset value, end of period $18.20 $16.58 $16.55
- --------------------------------------------------------------- ------- ------ ------
Total return (%)& 9.77++ 0.18^^ 18.89++^###
- ---------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 (CONTINUED) 2/28/05 8/31/04 8/31/03*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.39+ 1.44 1.60+
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.32+ (0.52) (0.60)+
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 32 80 72
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $3,075 $1,982 $221
- ---------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional
share of substantially all of Independent Chief Compliance Officer services paid to Tarantino LLC. If these fees
had been incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.02 $(0.10) $--
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.49+ 1.49 --
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.22+ (0.57) --
- ---------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
^ The fund's total return calculation includes 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 $0.01 per share based on shares
outstanding on the day the proceeds were received. Excluding the effect of this payment from the fund's ending
net asset value per share, total return for the year ended August 31, 2003 would have been 0.08% lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of
an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund
sales, as described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring
accrual resulted in an increase in the net asset value of $0.01 per share based on shares outstanding on the day
the proceeds were recorded.
+ 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 net asset value and total return previously reported as $13.94 and 18.72%, respectively, have been revised to
reflect the net asset value from the day prior to the class" inception date. The net asset value and total return
previously reported were from inception date, the date the share class was first available to public
shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED PERIOD ENDED
CLASS R2 2/28/05 8/31/04*
(UNAUDITED)
Net asset value, beginning of period $16.55 $16.99###
- --------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01) $(0.10)
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 1.60 (0.34)
- ------------------------------------------------------------------------ ------- ------
Total from investment operations $1.59 $(0.44)
- ------------------------------------------------------------------------ ------- ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++
- ------------------------------------------------------------------------ ------- ------
Net asset value, end of period $18.14 $16.55
- ------------------------------------------------------------------------ ------- ------
Total return (%)& 9.61++ (2.59)++^^###
- --------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.64+ 1.66+
- --------------------------------------------------------------------------------------------------------
Net investment loss (0.06)+ (0.74)+
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 32 80
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $767 $309
- --------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In
addition, effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of substantially all of Independent Chief Compliance Officer services paid to Tarantino LLC.
If these fees had been incurred by the fund, the net investment income (loss) per share and the ratios would have
been:
Net investment loss $(0.01) $(0.11)
- --------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.74+ 1.71
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.16)+ (0.79)
- --------------------------------------------------------------------------------------------------------
* For the period from inception of Class R2 shares, October 31, 2003, through August 31, 2004.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of
an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund
sales, as described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring
accrual resulted in an increase in the net asset value of $0.01 per share based on shares outstanding on the day
the proceeds were recorded.
+ 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 net asset value and total return previously reported as $17.01 and (2.70)%, respectively, have been revised
to reflect the net asset value from the day prior to the class" inception date. The net asset value and total
return previously reported were from inception date, the date the share class was first available to public
shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ----------------------------- ENDED
CLASS 529A 2/28/05 2004 2003 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $16.55 $16.52 $14.03 $13.89###
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income (loss)(S) $0.02 $(0.12) $(0.10) $(0.01)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency 1.59 0.15 2.59 0.15
- -------------------------------------------------------- ------- ------ ------ ------
Total from investment operations $1.61 $0.03 $2.49 $0.14
- -------------------------------------------------------- ------- ------ ------ ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- -------------------------------------------------------- ------- ------ ------ ------
Net asset value, end of period $18.16 $16.55 $16.52 $14.03
- -------------------------------------------------------- ------- ------ ------ ------
Total return (%)& 9.73++ 0.18^^ 17.75^ 1.01++###
- -----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ----------------------------- ENDED
CLASS 529A (CONTINUED) 2/28/05 2004 2003 8/31/02*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.49+ 1.56 1.67 1.70+
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.18+ (0.68) (0.69) (0.74)+
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 32 80 72 116
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $457 $394 $225 $5
- -----------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In
addition, effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino
LLC. If these fees had been incurred by the fund, the net investment income (loss) per share and the ratios would
have been:
Net investment income (loss) $0.01 $(0.13) $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.59+ 1.61 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.08+ (0.73) -- --
- -----------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A shares, July 31, 2002, through August 31, 2002.
^ The fund's total return calculation includes 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 $0.01 per share based on shares
outstanding on the day the proceeds were received. Excluding the effect of this payment from the fund's ending
net asset value per share, total return for the year ended August 31, 2003 would have been 0.09% lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of
an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund
sales, as described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring
accrual resulted in an increase in the net asset value of $0.01 per share based on shares outstanding on the day
the proceeds were recorded.
+ 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 net asset value and total return previously reported as $13.88 and 1.08%, respectively, have been revised to
reflect the net asset value from the day prior to the class" inception date. The net asset value and total return
previously reported were from inception date, the date the share class was first available to public
shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED -------------------------- ENDED
CLASS 529B 2/28/05 2004 2003 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $15.88 $15.97 $13.65 $13.52###
- -----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.04) $(0.22) $(0.19) $(0.02)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency 1.53 0.13 2.51 0.15
- ------------------------------------------------------- ------- ------ ------ ------
Total from investment operations $1.49 $(0.09) $2.32 $0.13
- ------------------------------------------------------- ------- ------ ------ ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- ------------------------------------------------------- ------- ------ ------ ------
Net asset value, end of period $17.37 $15.88 $15.97 $13.65
- ------------------------------------------------------- ------- ------ ------ ------
Total return (%)& 9.38++ (0.56)^^ 17.00^ 0.96++###
- -----------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED -------------------------- ENDED
CLASS 529B (CONTINUED) 2/28/05 2004 2003 8/31/02*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.13+ 2.20 2.33 2.35+
- -----------------------------------------------------------------------------------------------------------------------
Net investment loss (0.45)+ (1.31) (1.37) (1.39)+
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 32 80 72 116
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $170 $143 $79 $5
- -----------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In
addition, effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino
LLC. If these fees had been incurred by the fund, the net investment income (loss) per share and the ratios would
have been:
Net investment loss $(0.05) $(0.23) $-- $--
- -----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.23+ 2.25 -- --
- -----------------------------------------------------------------------------------------------------------------------
Net investment loss (0.55)+ (1.36) -- --
- -----------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B shares, July 31, 2002, through August 31, 2002.
^ The fund's total return calculation includes 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 $0.01 per share based on shares
outstanding on the day the proceeds were received. Excluding the effect of this payment from the fund's ending
net asset value per share, total return for the year ended August 31, 2003 would have been 0.09% lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of
an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund
sales, as described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring
accrual resulted in an increase in the net asset value of $0.01 per share based on shares outstanding on the day
the proceeds were recorded.
+ 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 net asset value and total return previously reported as $13.51 and 1.04%, respectively, have been revised to
reflect the net asset value from the day prior to the class" inception date. The net asset value and total return
previously reported were from inception date, the date the share class was first available to public
shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ---------------------------- ENDED
CLASS 529C 2/28/05 2004 2003 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $15.90 $15.99 $13.67 $13.54###
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.04) $(0.22) $(0.19) $(0.02)
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency 1.52 0.13 2.51 0.15
- ------------------------------------------------------- -------- ------ ------ ------
Total from investment operations $1.48 $(0.09) $2.32 $0.13
- ------------------------------------------------------- -------- ------ ------ ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- ------------------------------------------------------- -------- ------ ------ ------
Net asset value, end of period $17.38 $15.90 $15.99 $13.67
- ------------------------------------------------------- -------- ------ ------ ------
Total return (%)& 9.31++ (0.56)^^ 16.97^ 0.96++**###
- ------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ---------------------------- ENDED
CLASS 529C (CONTINUED) 2/28/05 2004 2003 8/31/02*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.13+ 2.20 2.30 2.35+
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.44)+ (1.29) (1.35) (1.38)+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 32 80 72 116
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $293 $221 $58 $5
- ------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In
addition, effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino
LLC. If these fees had been incurred by the fund, the net investment income (loss) per share and the ratios would
have been:
Net investment loss $(0.04) $(0.23) $-- $--
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.23+ 2.25 -- --
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.54)+ (1.34) -- --
- ------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C shares, July 31, 2002, through August 31, 2002.
** The total return previously reported for the period ended August 31, 2002 has been revised from 1.04% to 1.03%.
^ The fund's total return calculation includes 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 $0.01 per share based on shares
outstanding on the day the proceeds were received. Excluding the effect of this payment from the fund's ending
net asset value per share, total return for the year ended August 31, 2003 would have been 0.09% lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of
an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund
sales, as described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring
accrual resulted in an increase in the net asset value of $0.01 per share based on shares outstanding on the day
the proceeds were recorded.
+ 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 net asset value and total return previously reported as $13.53 and 1.03%, respectively, have been revised to
reflect the net asset value from the day prior to the class" inception date. The net asset value and total return
previously reported were from inception date, the date the share class was first available to public
shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
SEE NOTES TO FINANCIAL STATEMENTS
Notes to Financial Statements (unaudited) - continued
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Strategic Growth Fund (the fund) is a diversified series of MFS Series Trust
I (the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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. Money market mutual funds are
valued at net asset value. Investment valuations, other assets, and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates. 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.
DEFERRED TRUSTEE COMPENSATION - Under a Deferred Compensation Plan (the Plan)
independent Trustees may elect to defer receipt of all or a portion of their
annual compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or other MFS funds selected by
the Trustee. Deferred amounts represent an unsecured obligation of the fund
until distributed in accordance with the Plan. Included in other assets, and
accrued expenses and other liabilities, is $80,785 of Deferred Trustees"
Compensation.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned. State Street
provides the fund with indemnification against Borrower default. The fund bears
the risk of loss with respect to the investment of cash collateral. On loans
collateralized by cash, the cash collateral is invested in a money market fund
or short-term securities. A portion of the income generated upon investment of
the collateral is remitted to the Borrowers, and the remainder is allocated
between the fund and the lending agent. On loans collateralized by U.S. Treasury
securities, a fee is received from the Borrower, and is allocated between the
fund and the lending agent. Income from securities lending is included in
interest income on the Statement of Operations. The dividend and interest income
earned on the securities loaned is accounted for in the same manner as other
dividend and interest income.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, 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). Effective April 1, 2005, the fund will no longer charge a
redemption fee. See the fund's prospectus for details. Any redemption fees
charged 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. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss in
the Statement of Operations, or in unrealized gain/loss if the security is still
held by the fund.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. During the six months ended February 28, 2005, the fund's custodian fees
were reduced by $17,515 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the fund
a portion of the commissions generated, to offset certain expenses of the fund.
For the six months ended February 28, 2005, the fund's miscellaneous expenses
were reduced by $23,436 under this agreement. These amounts are shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. Distributions to
shareholders are recorded on the ex-dividend date. The fund distinguishes
between distributions on a tax basis and a financial reporting basis and only
distributions in excess of tax basis earnings and profits are reported in the
financial statements as distributions from paid-in capital. Differences in the
recognition or classification of income between the financial statements and tax
earnings and profits, which result in temporary over-distributions for financial
statement purposes, are classified as distributions in excess of net investment
income or net realized gains. Common types of book and tax differences that
could occur include differences in accounting for currency transactions, wash
sales, defaulted bonds and capital losses. The fund paid no distributions for
the years ended August 31, 2004 and August 31, 2003.
As of August 31, 2004, the components of accumulated losses on a tax basis were
as follows:
Capital loss carryforward $(1,157,631,028)
----------------------------------------------------------
Unrealized appreciation (depreciation) (133,632,242)
----------------------------------------------------------
Other temporary differences (2,056,149)
----------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration on:
EXPIRATION DATE
August 31, 2010 $(827,855,260)
----------------------------------------------------------
August 31, 2011 (299,742,793)
----------------------------------------------------------
August 31, 2012 (30,032,975)
----------------------------------------------------------
Total $(1,157,631,028)
----------------------------------------------------------
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. Effective April 15, 2005, Class J
shares will be terminated.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
the fund's average daily net assets.
As part of a settlement agreement with the New York Attorney General concerning
market timing and related matters (See Legal Proceedings footnote), MFS has
agreed to reduce the fund's management fee to 0.65% of average daily net assets
for the period March 1, 2004 through February 28, 2009, which is shown as a
reduction of total expenses in the Statement of Operations. During this time
period, the Board of Trustees will continue to review the appropriateness of all
advisory fees in accordance with their oversight responsibilities. After
February 28, 2009 the management fee will be determined in accordance with then
existing review policies approved by the Board of Trustees overseeing the fund.
The fund pays compensation to 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). The fund has an unfunded
defined benefit plan for retired Independent Trustees and an unfunded retirement
benefit deferral plan for current Independent Trustees. Included in Trustees"
compensation is a net decrease of $2,126 as a result of the change in the fund's
unfunded retirement benefit deferral plan for certain current Independent
Trustees and a pension expense of $1,077 for retired Independent Trustees for
the six months ended February 28, 2005.
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. On July 28,
2004, the fund accrued an estimate of the amount to be received pursuant to this
matter in the amount of $827,507, which resulted in an increase in net assets
value of $0.01 per share on the day the proceeds were recorded. The proceeds
were paid to the fund on February 16, 2005.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. 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. The fund
paid MFS an administrative fee up to the following annual percentage rates of
the fund's average daily net assets:
4/01/04
THROUGH
EFFECTIVE DATE 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
- ----------------------------------------------------------------------------
Next $2.5 billion 0.00832% 0.01206%
- ----------------------------------------------------------------------------
Next $2.5 billion 0.00032% 0.00056%
- ----------------------------------------------------------------------------
In excess of $7 billion 0.00000% 0.00000%
- ----------------------------------------------------------------------------
The March 1, 2005 rates were not effective during the current reporting period.
For the six months ended February 28, 2005, the fund paid MFS $44,205,
equivalent to 0.00557% 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
$33,733 and $232 for the six months ended February 28, 2005, as its portion of
the sales charge on sales of Class A and Class 529A shares of the fund,
respectively.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class J, Class R1, Class R2, Class 529A, Class 529B, and Class 529C shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD an annual
percentage of its average daily net assets attributable to certain share classes
as compensation for services provided by MFD and financial intermediaries in
connection with the distribution and servicing of its shares. One component of
the plan is a distribution fee and another is a service fee paid by MFD to
financial intermediaries that enter into sales or service agreements with MFD or
its affiliates based on the average daily net assets of accounts attributable to
such intermediaries. 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 J CLASS R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.75% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.25% 0.75% 0.75%
- --------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------
Total Distribution Plan 0.50% 1.00% 1.00%
- --------------------------------------------------------------------------
MFD may retain all or a portion of the service fee, including for accounts for which there is no financial intermediary of
record. Service fees retained by MFD for the six months ended February 28, 2005 amounted to:
CLASS A CLASS B CLASS C CLASS J CLASS R1 CLASS R2
Service Fee Retained by MFD $25,594 $4,081 $2,068 $0 $8 $13
- --------------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $232 $8 $31
- --------------------------------------------------------------------------------------------------------------------------
Payment of the 0.15% per annum portion of the Class 529A distribution fee that is not currently being charged will be
implemented on such date as the Trustees of the Trust may determine.
Fees incurred under the distribution plan during the six months ended February 28, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS J CLASS R1 CLASS R2
Effective Annual Percentage
Rates 0.35% 1.00% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Effective Annual Percentage
Rates 0.35% 1.00% 1.00%
- --------------------------------------------------------------------------------------------------------------------------
Certain Class A, Class C and Class 529C shares are subject to a contingent deferred sales charge in the event of a
shareholder redemption within, for Class A shares, 12 months following the purchase, and, for Class C and Class 529C
shares, the first year 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 of purchase. MFD receives all contingent
deferred sales charges. Contingent deferred sales charges imposed during the six months ended February 28, 2005 were as
follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred Sales
Charges Imposed $16,210 $470,195 $6,872 $27 $0
- -----------------------------------------------------------------------------------------------------------------------
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 December 31, 2004, the fund was charged up to 0.0861% of its
average daily net assets. For the period January 1, 2005 through February 28,
2005, the fund is charged up to 0.1035% of its average daily net assets. For the
six months ended February 28, 2005, the fund paid MFSC a fee of $724,140 for
shareholder services which equated to 0.0913% of the fund's average daily net
assets. Effective March 1, 2005, the fund is charged up to 0.1159% of its
average daily net assets. Shareholder service costs include out of pocket
expenses and sub accounting services expenses paid by MFSC on behalf of the fund
and subsequently reimbursed to MFSC which amounted to $724,140, and other costs
paid by the fund directly to unaffiliated vendors for the six months ended
February 28, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$489,514,214 and $555,539,978, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are as
follows:
Aggregate cost $1,610,461,217
----------------------------------------------------------
Gross unrealized appreciation $120,319,551
----------------------------------------------------------
Gross unrealized depreciation (107,604,205)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $12,715,346
----------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended 2/28/05 Year ended 8/31/04*
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 2,620,620 $46,791,365 9,135,629 $159,921,433
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (6,670,181) (120,111,347) (15,888,205) (278,004,488)
- -----------------------------------------------------------------------------------------------------------
Net change (4,049,561) $(73,319,982) (6,752,576) $(118,083,055)
- -----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 667,943 $11,450,932 2,724,980 $45,750,851
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (4,525,100) (77,811,432) (7,496,759) (125,557,730)
- -----------------------------------------------------------------------------------------------------------
Net change (3,857,157) $(66,360,500) (4,771,779) $(79,806,879)
- -----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 162,006 $2,786,238 924,461 $15,527,263
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (1,501,148) (25,834,486) (2,603,489) (43,764,517)
- -----------------------------------------------------------------------------------------------------------
Net change (1,339,142) $(23,048,248) (1,679,028) $(28,237,254)
- -----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 5,161,848 $94,510,478 14,464,089 $257,055,055
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (197,761) (3,584,433) (315,485) (5,591,834)
- -----------------------------------------------------------------------------------------------------------
Net change 4,964,087 $90,926,045 14,148,604 $251,463,221
- -----------------------------------------------------------------------------------------------------------
CLASS J SHARES
Shares sold 22,747 $391,281 134,418 $2,218,836
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (69,953) (1,224,231) (118,008) (2,007,446)
- -----------------------------------------------------------------------------------------------------------
Net change (47,206) $(832,950) 16,410 $211,390
- -----------------------------------------------------------------------------------------------------------
CLASS R1 SHARES
Shares sold 97,394 $1,764,249 122,633 $2,203,904
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (48,031) (876,186) (16,451) (285,108)
- -----------------------------------------------------------------------------------------------------------
Net change 49,363 $888,063 106,182 $1,918,796
- -----------------------------------------------------------------------------------------------------------
CLASS R2 SHARES
Shares sold 25,408 $463,339 18,703 $327,908
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (1,810) (32,887) -- --
- -----------------------------------------------------------------------------------------------------------
Net change 23,598 $430,452 18,703 $327,908
- -----------------------------------------------------------------------------------------------------------
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 2,520 $45,230 11,639 $202,658
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (1,140) (19,585) (1,468) (25,484)
- -----------------------------------------------------------------------------------------------------------
Net change 1,380 $25,645 10,171 $177,174
- -----------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 889 $15,295 4,118 $68,611
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (107) (1,845) (38) (635)
- -----------------------------------------------------------------------------------------------------------
Net change 782 $13,450 4,080 $67,976
- -----------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 3,540 $61,779 10,500 $173,280
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (549) (9,574) (263) (4,426)
- -----------------------------------------------------------------------------------------------------------
Net change 2,991 $52,205 10,237 $168,854
- -----------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
The fund is one of several MFS mutual funds in which the MFS Asset Allocation
Funds may invest. The MFS Asset Allocation Funds do not invest in the underlying
MFS funds for the purpose of exercising management or control. At the end of the
period, the MFS Conservative Allocation Fund, MFS Aggressive Growth Allocation
Fund, MFS Moderate Allocation Fund and MFS Growth Allocation Fund were the
owners of record of approximately 2%, 8%, 9% and 13%, respectively, of the total
outstanding shares.
(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 six months ended February 28, 2005 was $5,354, and
is included in miscellaneous expense. The fund had no significant borrowings
during the six months ended February 28, 2005.
(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. 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 intermediaries who support the sale of MFS fund shares. 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. The final distribution plan
was approved by the SEC on January 21, 2005 and the affected MFS funds received
the payment on February 16, 2005.
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 open-end retail fund ("MFS retail funds")
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 they prohibited market
timing, MFS did not limit trading activity in 11 domestic large cap stock, high
grade bond and money market retail funds. MFS" former Chief Executive Officer
and former President 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. These individuals
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, MFS Fund Distributors, Inc., MFS Service Center, Inc.,
MFS Corporation Retirement Committee, Sun Life Financial Inc., various MFS
funds, certain current and/or former 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 ERISA actions by
participants in certain retirement plan accounts on behalf of those 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, Allianz Dresdner), No. 1:04-md-15863
(transfer began March 19, 2004)). The market timing cases related to the MFS
complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM (direct), Hammerslough
v. MFS et al., Case No. 04-md-01620 (derivative) and Anita Walker v. MFS et al.,
Case No. 1:04-CV-01758 (ERISA). The plaintiffs in these consolidated lawsuits
generally seek injunctive relief including removal of the named Trustees,
adviser and distributor, rescission of contracts and 12b-1 Plans, disgorgement
of fees and profits, monetary damages, punitive damages, attorney's fees and
costs and other equitable and declaratory relief. Two 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) (a consolidated action) and
Marcus Dumond, et al. v. Massachusetts Financial Servs. Co., et al., No.
04cv11458 (GAO)). The plaintiffs in these lawsuits generally seek compensatory
damages, punitive damages, recovery of fees, rescission of contracts, an
accounting, restitution, declaratory relief, equitable and/or injunctive relief
and attorney's fees and costs. The various 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 (ii) received excessive
compensation as fiduciaries to the MFS funds, or (iii) 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. 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 certain 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 distributed $50 million 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.
- -------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
- -------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
- ------------------------------------------------------------------------------
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.
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.
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
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc., 500
Boylston Street, Boston, MA 02116.
AGF-SEM-04/05 150M
MFS(R) CORE EQUITY FUND 2/28/05
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
SEMIANNUAL REPORT
LETTER FROM THE CEO 1
------------------------------------------------------
PORTFOLIO COMPOSITION 4
------------------------------------------------------
MANAGEMENT REVIEW 5
------------------------------------------------------
PERFORMANCE SUMMARY 8
------------------------------------------------------
EXPENSE TABLE 12
------------------------------------------------------
PORTFOLIO OF INVESTMENTS 14
------------------------------------------------------
FINANCIAL STATEMENTS 22
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 38
------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 49
------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 49
------------------------------------------------------
CONTACT INFORMATION BACK COVER
------------------------------------------------------
- -------------------------------------------------------------------------------
LETTER FROM THE CEO
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Last summer and fall, I wrote to you about enhancements that MFS(R) was making
to its investment process. Our goal, as always, was to deliver strong
performance across all asset classes. I am now happy to report to you that 2004
was a very successful year for MFS, relative to our peers in the mutual fund
industry. While there will always be room for improvement, we believe the
enhancements we have made to our investment process resulted in significantly
improved performance across the MFS Family of Funds(R).
You may remember some of the enhancements I outlined last year.
They included
o increasing collaboration and information sharing among our investment
personnel across asset classes, through an Investment Management Committee
with members from our Domestic Equity, International Equity, Fixed Income,
and Quantitative Research teams
o increasing the number of analysts supporting our portfolio managers and
doubling the average investment experience of our domestic equity analyst
staff
o making additional use of our most-seasoned portfolio managers to mentor
research analysts
o combining more quantitative, top-down risk control and security analysis
with our traditional bottom-up research process
o opening a research office in Mexico City to complement our existing staff in
Boston, London, Singapore, and Tokyo
The effect of these enhancements, I believe, is evident in the 2004 performance
of our funds. For the 12 months ended December 31, 2004, 80% of MFS domestic
equity funds, 100% of MFS international equity funds, and 80% of MFS fixed-
income funds delivered results in the top half of their Lipper peer groups.
Our longer-term performance also benefited from our ongoing commitment to the
MFS Original Research(R) process: more than 75% of MFS funds were in the top
half of their respective Lipper categories over the 3-, 5-, and 10-year periods
ended December 31, 2004.
Of course, I cannot offer any guarantees that our performance will repeat
itself. Still, I am confident that the recent enhancements to our investment
process will continue to benefit shareholders in 2005 and beyond.
What I can tell you with certainty is that the way you manage your investments
will determine how well you take advantage of the performance that financial
markets deliver. Historically, individual investors have tended to underperform
the markets. For example, a 2003 study by DALBAR, Inc. showed that over the
nearly two decades from 1984 through 2002, the average U.S. stock investor
earned a 2.6% average annual return at a time when U.S. stocks, as measured by
the Standard & Poor's 500 Stock Index, delivered a 12.2% average annual
return.(1)
This huge discrepancy, in our view, occurred because nonprofessional investors
generally did not adhere to the basic principles followed by most professional
investors: allocate among asset classes, diversify within each asset class, and
rebalance one's portfolio on a routine schedule. I elaborated on this "ADR"
theme in fund reports over the last few months of 2004. For more information on
how to apply a Disciplined Diversification(SM) strategy to your portfolio using
the principles of ADR, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Web site, MFS.COM.
As always, we appreciate your confidence in MFS, and you can be sure of our
continued commitment to do the best we can to help you pursue your long-term
financial goals.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
April 15, 2005
It is not possible to invest directly in an index.
Lipper rankings and performance are based on historical average annual returns
of Class A shares, and do not include any sales charges. Past performance is no
guarantee of future results.
Asset allocation and diversification cannot guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
(1) Source: DALBAR July 2003 update to its Quantitative Analysis of Investment
Behavior; DALBAR, Inc., is a financial-services market research firm
headquartered in Boston, MA.
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
PORTFOLIO STRUCTURE
Stocks 98.3%
Cash & Other Net Assets 1.7%
TOP TEN HOLDINGS
Exxon Mobil Corp. 2.8%
-----------------------------------------
Lockheed Martin Corp. 2.2%
-----------------------------------------
Bank of America Corp. 2.2%
-----------------------------------------
General Electric Co. 2.2%
-----------------------------------------
Dell, Inc. 2.1%
-----------------------------------------
Wyeth Pharmaceuticals 2.1%
-----------------------------------------
TOTAL S.A., ADR 2.1%
-----------------------------------------
Target Corp. 2.0%
-----------------------------------------
PepsiCo, Inc. 1.9%
-----------------------------------------
Kohl's Corp. 1.9%
-----------------------------------------
SECTOR WEIGHTINGS
Financial Services 19.1%
-----------------------------------------
Technology 14.4%
-----------------------------------------
Health Care 12.8%
-----------------------------------------
Energy 8.1%
-----------------------------------------
Industrial Goods & Services 7.7%
-----------------------------------------
Consumer Staples 7.4%
-----------------------------------------
Retailing 6.9%
-----------------------------------------
Utilities & Communications 6.5%
-----------------------------------------
Leisure 5.5%
-----------------------------------------
Basic Materials 5.2%
-----------------------------------------
Special Products & Services 1.8%
-----------------------------------------
Transportation 1.5%
-----------------------------------------
Autos & Housing 1.4%
-----------------------------------------
Percentages are based on net assets as of 2/28/05.
The portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
SUMMARY OF RESULTS
For the six months ended February 28, 2005, Class A shares of the MFS Core
Equity Fund provided a total return of 13.16%, not including sales charges. In
comparison, the fund's benchmark, the Standard and Poor's 500 Stock Index (the
S&P 500), returned 9.98%. The fund's investment objective is to seek to provide
long-term growth of capital. The fund invests, under normal market conditions,
at least 80% of its net assets in common stocks and related securities, such as
preferred stocks, convertible securities and depositary receipts. The fund
focuses on companies that MFS believes have sustainable growth prospects and
attractive valuations based on current and expected earnings or cash flow. While
the fund may invest in companies of any size, the fund generally focuses on
companies with market capitalizations in excess of $2 billion.
MARKET ENVIRONMENT
Over the period, many measures of global economic growth, including employment
and corporate spending, continued to improve, although we feel that high oil
prices, rising short-term interest rates in the United States, a significant
decline in the value of the U.S. dollar against most major currencies, and
geopolitical uncertainty impacted markets. But, oil prices pulled back from
their record levels toward the end of 2004 and, in our view, investors seemed to
turn their attention to strong corporate profits and economic growth.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the health care sector was the strongest contributor to
performance relative to the S&P 500. Avoiding pharmaceutical firms Pfizer and
Merck (both constituents in the index) helped results as both stocks lagged the
benchmark.
Stock selection in the basic materials, and utilities and communications sectors
also boosted the fund's relative performance. In basic materials, chemicals and
polymers manufacturer Lyondell Chemical, agricultural products supplier
Monsanto, and Brazilian iron ore miner Companhia Vale Do Rio Doce aided relative
results. In utilities and communications, electric power provider TXU Corp. was
a significant overall contributor.
Several stocks from the technology group, including Apple Computer, business
intelligence software provider MicroStrategy, and e-commerce outsourcing
solutions provider Digital River*, were also among the top relative
contributors.
DETRACTORS FROM PERFORMANCE
Stock selection in the special products and services sector held back results
relative to the S&P 500. Moving and relocation services firm SIRVA, Inc. was a
significant detractor in this group.
Although the technology sector was a positive contributor overall, several
technology stocks were among the top detractors, including procurement software
provider Ariba, service management software developer SupportSoft*, computer
printer manufacturer Lexmark International, and Internet portal provider Yahoo.
With Yahoo we missed much of its positive performance given our positioning
during the period.
Stocks in other sectors that hurt investment results included mortgage financing
firm Freddie Mac* and discount department store retailer Kohl's. Not owning
stock in energy firm ChevronTexaco (an index constituent that outperformed the
S&P 500) also dampened relative results.
While it averaged less than 3% over the period, the fund's cash position held
back relative performance. As with nearly all portfolios, this fund holds some
cash to buy new holdings and to provide liquidity. In a period when equity
markets - as measured by the S&P 500 - rose, holding any cash hurt relative
performance. The index does not have a cash position.
Respectfully,
/s/ David A. Antonelli
David A. Antonelli
Director of Global Equity Research
* Security was not held in the portfolio at period-end.
The fund is managed by a team of MFS(R) equity research analysts, under the
general supervision of Mr. Antonelli.
Note to Shareholders: Prior to May 1, 2004, MFS(R) Core Equity Fund was known as
MFS(R) Research Growth and Income Fund. The fund's name was changed to better
reflect its new primary investment objective of one seeking to provide long-term
growth of capital rather than one seeking to provide long-term growth of
capital, current income, and growth of income.
The views expressed in this report are those of the Director of Global Equity
Research only through the end of the period of the report as stated on the cover
and do not necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or 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.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/28/05
- -------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including the reinvestment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR I SHARES, CALL 1-888-808-6374.) 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. HIGH
SHORT-TERM RETURNS FOR ANY PERIOD MAY BE AND LIKELY WERE ATTRIBUTABLE TO
FAVORABLE MARKET CONDITIONS DURING THAT PERIOD, WHICH MAY NOT BE REPEATABLE. THE
PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/96 13.16% 9.04% 4.94% 2.11% 9.07%
- ------------------------------------------------------------------------------
B 1/02/97 12.78% 8.29% 4.23% 1.44% 8.36%
- ------------------------------------------------------------------------------
C 1/02/97 12.76% 8.32% 4.23% 1.43% 8.34%
- ------------------------------------------------------------------------------
I 1/02/97 13.33% 9.42% 5.30% 2.47% 9.40%
- ------------------------------------------------------------------------------
R1** 12/31/02 13.00% 8.81% 4.80% 2.03% 9.03%
- ------------------------------------------------------------------------------
R2** 10/31/03 12.88% 8.62% 4.77% 2.01% 9.01%
- ------------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks
- ------------------------------------------------------------------------------
Average multi-cap
core fund+ 11.96% 6.70% 5.40% 0.22% 8.93%
- ------------------------------------------------------------------------------
Standard & Poor's 500 Stock
Index# 9.98% 6.97% 4.64% -0.98% 9.32%
- ------------------------------------------------------------------------------
- --------------------
Average annual
with sales charge
- --------------------
Share class 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 6.65% 2.77% 2.89% 0.91% 8.37%
- ------------------------------------------------------------------------------
B 8.78% 4.29% 3.30% 1.06% 8.36%
- ------------------------------------------------------------------------------
C 11.76% 7.32% 4.23% 1.43% 8.34%
- ------------------------------------------------------------------------------
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 13.16% 9.04% 15.57% 10.99% 121.50%
- ------------------------------------------------------------------------------
B 12.78% 8.29% 13.24% 7.41% 108.66%
- ------------------------------------------------------------------------------
C 12.76% 8.32% 13.22% 7.37% 108.25%
- ------------------------------------------------------------------------------
I 13.33% 9.42% 16.75% 12.96% 127.64%
- ------------------------------------------------------------------------------
R1** 13.00% 8.81% 15.10% 10.55% 120.61%
- ------------------------------------------------------------------------------
R2** 12.88% 8.62% 14.99% 10.44% 120.40%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through February 28, 2005. Index information is from January
1, 1996.
** Effective April 1, 2005, Class R1 shares have been renamed "Class R shares",
and Class R2 shares have been renamed "Class R3 shares". In addition, on
April 1, 2005, the fund launched the following new R share classes: R1, R2,
R4, and R5. All references herein to Class R1 and Class R2 shares are as of
February 28, 2005 and do not reflect the renaming of Class R1 and Class R2
shares.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
S&P 500 Stock Index - is a capitalization-weighted index of 500 widely held
equity securities, designed to measure broad U.S. equity performance.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results including sales charge reflect the deduction of the maximum
5.75% sales charge. Class B results including sales charge reflect the deduction
of the applicable contingent deferred sales charge (CDSC), which declines over
six years from 4% to 0%. Class C results including sales charge (assuming
redemption within one year from the end of the prior month of purchase) reflect
the deduction of the 1% CDSC. Class I shares have no sales charges and are
available only to certain investors. Class R1 and R2 shares have no sales
charges and are available only to certain retirement plans.
Performance for share classes offered after Class A shares includes the
performance of the fund's Class A shares for periods prior to their offering.
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 share class to which it is blended, and
lower performance for share classes with lower operating expenses than the 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.
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.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
The portfolio may invest in foreign and/or emerging markets securities, which
are more susceptible to risks relating to interest rates, currency exchange
rates, economic, and political conditions.
The portfolio may be susceptible to market risk, which is the risk that the
price of a security held by the fund will fall due to changing economic,
political or market conditions or disappointing earnings results.
Prices of securities react to the economic condition of the company that issued
the security. The fund's investments in an issuer may rise and fall based on the
issuer's actual and anticipated earnings, changes in management and the
potential for takeovers and acquisitions. Companies may be less likely to pay
dividends in difficult economic environments.
Large cap companies tend to go in and out of favor based on market and economic
conditions. Large cap companies tend to be less volatile than companies with
smaller market capitalizations. In exchange for this potentially lower risk, the
fund's value may not rise as much as the value of funds that emphasize smaller
cap companies.
This is the risk that the prices of growth company securities held by the fund
will fall to a greater extent than the overall equity markets (e.g., as
represented by the Standard and Poor's Composite 500 Index) due to changing
economic, political or market conditions or disappointing growth company
earnings results.
Over the counter (OTC) transactions involve risks in addition to those incurred
by transactions in securities traded on exchanges. OTC-listed companies may have
limited product lines, markets or financial resources. Many OTC stocks trade
less frequently and in smaller volume than exchange-listed stocks. The values of
these stocks may be more volatile than exchange-listed stocks, and the fund may
experience difficulty in purchasing or selling these securities at a fair price.
The fund has engaged and may engage in active and frequent trading to achieve
its principal investment strategies. This may result in the realization and
distribution to shareholders of higher capital gains as compared to a fund with
less active trading policies, which would increase your tax liability unless you
hold your shares through a tax-deferred or exempt vehicle (such as an Individual
Retirement Account (IRA)). Frequent trading also increases transaction costs,
which could detract from the fund's performance.
Please see the prospectus for further information regarding these and other risk
considerations.
- -------------------------------------------------------------------------------
EXPENSE TABLE
- -------------------------------------------------------------------------------
FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM SEPTEMBER 1, 2004,
THROUGH FEBRUARY 28, 2005.
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, September 1, 2004 through February 28,
2005.
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 9/01/04 2/28/05 9/01/04-2/28/05
- -------------------------------------------------------------------------------
Actual 1.44% $1,000 $1,132 $7.61
A -------------------------------------------------------------------------
Hypothetical* 1.44% $1,000 $1,018 $7.21
- -------------------------------------------------------------------------------
Actual 2.07% $1,000 $1,128 $10.92
B -------------------------------------------------------------------------
Hypothetical* 2.07% $1,000 $1,015 $10.34
- -------------------------------------------------------------------------------
Actual 2.08% $1,000 $1,128 $10.97
C -------------------------------------------------------------------------
Hypothetical* 2.08% $1,000 $1,014 $10.39
- -------------------------------------------------------------------------------
Actual 1.34% $1,000 $1,133 $7.09
I -------------------------------------------------------------------------
Hypothetical* 1.34% $1,000 $1,018 $6.70
- -------------------------------------------------------------------------------
Actual 1.59% $1,000 $1,130 $8.40
R1 -------------------------------------------------------------------------
Hypothetical* 1.59% $1,000 $1,017 $7.95
- -------------------------------------------------------------------------------
Actual 1.83% $1,000 $1,129 $9.66
R2 -------------------------------------------------------------------------
Hypothetical* 1.83% $1,000 $1,016 $9.15
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** 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 (unaudited) - 2/28/05
- -------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Stocks - 98.3%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------
Aerospace - 3.0%
- -------------------------------------------------------------------------------------------------
ITT Industry, Inc. 11,490 $1,010,546
- -------------------------------------------------------------------------------------------------
KVH Industries, Inc.^* 41,870 424,981
- -------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 70,930 4,200,475
- -------------------------------------------------------------------------------------------------
$5,636,002
- -------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.6%
- -------------------------------------------------------------------------------------------------
Anheuser-Busch Cos., Inc. 22,960 $1,089,452
- -------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.3%
- -------------------------------------------------------------------------------------------------
Columbia Sportswear Co.^* 10,280 $576,194
- -------------------------------------------------------------------------------------------------
Automotive - 0.8%
- -------------------------------------------------------------------------------------------------
Harley-Davidson, Inc. 12,790 $791,445
- -------------------------------------------------------------------------------------------------
Magna International, Inc., "A" 9,780 723,231
- -------------------------------------------------------------------------------------------------
$1,514,676
- -------------------------------------------------------------------------------------------------
Banks & Credit Companies - 12.0%
- -------------------------------------------------------------------------------------------------
Bank of America Corp. 89,304 $4,166,032
- -------------------------------------------------------------------------------------------------
Countrywide Financial Corp. 75,680 2,629,880
- -------------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co. 80,590 2,945,565
- -------------------------------------------------------------------------------------------------
North Fork Bancorporation, Inc. 97,540 2,810,127
- -------------------------------------------------------------------------------------------------
PNC Financial Services Group, Inc. 34,100 1,795,024
- -------------------------------------------------------------------------------------------------
SLM Corp. 69,190 3,376,472
- -------------------------------------------------------------------------------------------------
SunTrust Banks, Inc. 30,800 2,231,152
- -------------------------------------------------------------------------------------------------
U.S. Bancorp 50,810 1,511,598
- -------------------------------------------------------------------------------------------------
Washington Mutual, Inc. 34,880 1,463,565
- -------------------------------------------------------------------------------------------------
$22,929,415
- -------------------------------------------------------------------------------------------------
Biotechnology - 1.2%
- -------------------------------------------------------------------------------------------------
Gilead Sciences, Inc.* 34,900 $1,205,795
- -------------------------------------------------------------------------------------------------
MedImmune, Inc.* 47,850 1,152,228
- -------------------------------------------------------------------------------------------------
$2,358,023
- -------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.7%
- -------------------------------------------------------------------------------------------------
ADVO, Inc. 8,740 $320,496
- -------------------------------------------------------------------------------------------------
Citadel Broadcasting Corp.* 17,550 247,806
- -------------------------------------------------------------------------------------------------
Comcast Corp., "A"* 14,500 471,975
- -------------------------------------------------------------------------------------------------
Broadcast & Cable TV - continued
- -------------------------------------------------------------------------------------------------
EchoStar Communications Corp., "A" 30,660 $912,135
- -------------------------------------------------------------------------------------------------
Interpublic Group of Cos., Inc.* 71,810 943,583
- -------------------------------------------------------------------------------------------------
R.H. Donnelley Corp.* 7,520 458,720
- -------------------------------------------------------------------------------------------------
Radio One, Inc., "D"^* 33,660 460,132
- -------------------------------------------------------------------------------------------------
Viacom, Inc., "B" 25,020 873,198
- -------------------------------------------------------------------------------------------------
Walt Disney Co. 81,790 2,285,213
- -------------------------------------------------------------------------------------------------
$6,973,258
- -------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.3%
- -------------------------------------------------------------------------------------------------
Ameritrade Holding Corp.* 90,210 $958,932
- -------------------------------------------------------------------------------------------------
Franklin Resources, Inc. 4,110 288,481
- -------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 12,610 1,371,968
- -------------------------------------------------------------------------------------------------
Legg Mason, Inc. 16,150 1,302,336
- -------------------------------------------------------------------------------------------------
Mellon Financial Corp. 13,850 397,218
- -------------------------------------------------------------------------------------------------
$4,318,935
- -------------------------------------------------------------------------------------------------
Business Services - 1.6%
- -------------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 36,940 $943,817
- -------------------------------------------------------------------------------------------------
Fiserv, Inc.* 24,490 929,151
- -------------------------------------------------------------------------------------------------
Getty Images, Inc.^* 5,560 396,650
- -------------------------------------------------------------------------------------------------
Hewitt Associates, Inc., "A"* 11,740 360,888
- -------------------------------------------------------------------------------------------------
SIRVA, Inc.^* 52,310 459,805
- -------------------------------------------------------------------------------------------------
$3,090,311
- -------------------------------------------------------------------------------------------------
Chemicals - 2.0%
- -------------------------------------------------------------------------------------------------
E.I. du Pont de Nemours & Co. 27,640 $1,473,212
- -------------------------------------------------------------------------------------------------
Monsanto Co. 38,780 2,279,488
- -------------------------------------------------------------------------------------------------
$3,752,700
- -------------------------------------------------------------------------------------------------
Computer Software - 2.7%
- -------------------------------------------------------------------------------------------------
Business Objects S.A., ADR^* 36,920 $1,032,283
- -------------------------------------------------------------------------------------------------
Computer Associates International, Inc. 155 4,199
- -------------------------------------------------------------------------------------------------
FileNet Corp.* 7,540 176,587
- -------------------------------------------------------------------------------------------------
MicroStrategy, Inc., "A"^* 6,380 451,194
- -------------------------------------------------------------------------------------------------
Oracle Corp.* 144,990 1,871,821
- -------------------------------------------------------------------------------------------------
Symantec Corp.* 72,900 1,604,529
- -------------------------------------------------------------------------------------------------
$5,140,613
- -------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.8%
- -------------------------------------------------------------------------------------------------
Apple Computer, Inc.* 27,760 $1,245,314
- -------------------------------------------------------------------------------------------------
Dell, Inc.* 101,150 4,055,104
- -------------------------------------------------------------------------------------------------
$5,300,418
- -------------------------------------------------------------------------------------------------
Construction - 0.4%
- -------------------------------------------------------------------------------------------------
Eagle Materials, Inc.^ 10,160 $848,665
- -------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.8%
- -------------------------------------------------------------------------------------------------
Career Education Corp.* 15,370 $524,886
- -------------------------------------------------------------------------------------------------
Gillette Co. 38,170 1,918,043
- -------------------------------------------------------------------------------------------------
Procter & Gamble Co. 56,080 2,977,287
- -------------------------------------------------------------------------------------------------
$5,420,216
- -------------------------------------------------------------------------------------------------
Containers - 0.6%
- -------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.* 64,370 $1,070,473
- -------------------------------------------------------------------------------------------------
Electrical Equipment - 4.0%
- -------------------------------------------------------------------------------------------------
American Standard Cos., Inc. 10,720 $490,976
- -------------------------------------------------------------------------------------------------
General Electric Co. 117,720 4,143,744
- -------------------------------------------------------------------------------------------------
Tyco International Ltd. 92,340 3,091,543
- -------------------------------------------------------------------------------------------------
$7,726,263
- -------------------------------------------------------------------------------------------------
Electronics - 2.7%
- -------------------------------------------------------------------------------------------------
Analog Devices, Inc. 43,110 $1,582,999
- -------------------------------------------------------------------------------------------------
FormFactor, Inc.^* 19,120 439,186
- -------------------------------------------------------------------------------------------------
Integrated Circuit Systems, Inc.* 29,640 598,135
- -------------------------------------------------------------------------------------------------
KLA-Tencor Corp. 10,500 518,805
- -------------------------------------------------------------------------------------------------
Marvell Technology Group Ltd.* 10,830 396,270
- -------------------------------------------------------------------------------------------------
PMC-Sierra, Inc.* 72,180 718,191
- -------------------------------------------------------------------------------------------------
PowerDsine Ltd.^* 33,500 332,320
- -------------------------------------------------------------------------------------------------
Silicon Laboratories, Inc.* 17,690 620,919
- -------------------------------------------------------------------------------------------------
Xilinx, Inc. 570 17,214
- -------------------------------------------------------------------------------------------------
$5,224,039
- -------------------------------------------------------------------------------------------------
Energy - Independent - 1.0%
- -------------------------------------------------------------------------------------------------
Devon Energy Corp. 16,950 $793,091
- -------------------------------------------------------------------------------------------------
EOG Resources, Inc. 3,570 325,298
- -------------------------------------------------------------------------------------------------
Noble Energy, Inc. 10,500 710,220
- -------------------------------------------------------------------------------------------------
$1,828,609
- -------------------------------------------------------------------------------------------------
Energy - Integrated - 6.0%
- -------------------------------------------------------------------------------------------------
ConocoPhillips 20,000 $2,217,800
- -------------------------------------------------------------------------------------------------
Exxon Mobil Corp. 83,312 5,274,483
- -------------------------------------------------------------------------------------------------
TOTAL S.A., ADR 33,670 4,013,464
- -------------------------------------------------------------------------------------------------
$11,505,747
- -------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.1%
- -------------------------------------------------------------------------------------------------
CVS Corp. 30,330 $1,511,344
- -------------------------------------------------------------------------------------------------
Kroger Co.* 34,670 623,713
- -------------------------------------------------------------------------------------------------
$2,135,057
- -------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 2.6%
- -------------------------------------------------------------------------------------------------
General Mills, Inc. 23,420 $1,226,505
- -------------------------------------------------------------------------------------------------
PepsiCo, Inc. 68,909 3,711,439
- -------------------------------------------------------------------------------------------------
$4,937,944
- -------------------------------------------------------------------------------------------------
Furniture & Appliances - 0.2%
- -------------------------------------------------------------------------------------------------
Mohawk Industries, Inc.* 3,920 $351,781
- -------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.8%
- -------------------------------------------------------------------------------------------------
Carnival Corp. 15,070 $819,507
- -------------------------------------------------------------------------------------------------
WMS Industries, Inc.^* 24,530 735,655
- -------------------------------------------------------------------------------------------------
$1,555,162
- -------------------------------------------------------------------------------------------------
General Merchandise - 3.9%
- -------------------------------------------------------------------------------------------------
Kohl's Corp.* 73,880 $3,536,636
- -------------------------------------------------------------------------------------------------
Target Corp. 76,480 3,886,714
- -------------------------------------------------------------------------------------------------
$7,423,350
- -------------------------------------------------------------------------------------------------
Insurance - 4.1%
- -------------------------------------------------------------------------------------------------
Ace Ltd. 24,750 $1,100,385
- -------------------------------------------------------------------------------------------------
American International Group, Inc. 37,050 2,474,940
- -------------------------------------------------------------------------------------------------
Conseco, Inc.* 24,340 460,513
- -------------------------------------------------------------------------------------------------
Genworth Financial, Inc. 17,870 503,219
- -------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. 11,510 828,145
- -------------------------------------------------------------------------------------------------
MetLife, Inc. 34,240 1,405,210
- -------------------------------------------------------------------------------------------------
Prudential Financial, Inc. 19,160 1,092,120
- -------------------------------------------------------------------------------------------------
$7,864,532
- -------------------------------------------------------------------------------------------------
Internet - 1.9%
- -------------------------------------------------------------------------------------------------
Ariba, Inc.^* 216,180 $1,969,400
- -------------------------------------------------------------------------------------------------
eBay, Inc.* 10,130 433,969
- -------------------------------------------------------------------------------------------------
Yahoo!, Inc.* 40,790 1,316,293
- -------------------------------------------------------------------------------------------------
$3,719,662
- -------------------------------------------------------------------------------------------------
Leisure & Toys - 0.3%
- -------------------------------------------------------------------------------------------------
Electronic Arts, Inc.* 3,410 $219,911
- -------------------------------------------------------------------------------------------------
Hasbro, Inc. 7,040 148,685
- -------------------------------------------------------------------------------------------------
Mattel, Inc. 8,740 182,841
- -------------------------------------------------------------------------------------------------
$551,437
- -------------------------------------------------------------------------------------------------
Machinery & Tools - 0.5%
- -------------------------------------------------------------------------------------------------
Caterpillar, Inc. 6,440 $612,122
- -------------------------------------------------------------------------------------------------
Roper Industries, Inc. 6,030 389,538
- -------------------------------------------------------------------------------------------------
$1,001,660
- -------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 2.3%
- -------------------------------------------------------------------------------------------------
Apria Healthcare Group, Inc.* 17,290 $561,233
- -------------------------------------------------------------------------------------------------
HCA, Inc. 44,790 2,114,536
- -------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.* 126,410 1,379,133
- -------------------------------------------------------------------------------------------------
VistaCare, Inc., "A"^* 23,050 403,836
- -------------------------------------------------------------------------------------------------
$4,458,738
- -------------------------------------------------------------------------------------------------
Medical Equipment - 2.6%
- -------------------------------------------------------------------------------------------------
Aspect Medical Systems, Inc.^* 19,890 $429,226
- -------------------------------------------------------------------------------------------------
Boston Scientific Corp.* 48,730 1,591,522
- -------------------------------------------------------------------------------------------------
Cyberonics, Inc.^* 22,300 836,027
- -------------------------------------------------------------------------------------------------
Zimmer Holdings, Inc.* 23,620 2,028,958
- -------------------------------------------------------------------------------------------------
$4,885,733
- -------------------------------------------------------------------------------------------------
Metals & Mining - 1.0%
- -------------------------------------------------------------------------------------------------
Aber Diamond Corp. 16,000 $535,777
- -------------------------------------------------------------------------------------------------
Companhia Vale do Rio Doce, ADR 38,980 1,364,300
- -------------------------------------------------------------------------------------------------
$1,900,077
- -------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.5%
- -------------------------------------------------------------------------------------------------
AGL Resources, Inc. 26,960 $933,355
- -------------------------------------------------------------------------------------------------
Oil Services - 1.1%
- -------------------------------------------------------------------------------------------------
Halliburton Co. 22,030 $968,659
- -------------------------------------------------------------------------------------------------
Noble Corp. 7,890 450,282
- -------------------------------------------------------------------------------------------------
Pride International, Inc.* 27,380 674,096
- -------------------------------------------------------------------------------------------------
$2,093,037
- -------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.4%
- -------------------------------------------------------------------------------------------------
EMC Corp.* 90,590 $1,146,869
- -------------------------------------------------------------------------------------------------
Flextronics International Ltd.* 61,610 822,494
- -------------------------------------------------------------------------------------------------
Lexmark International, Inc., "A"* 18,760 1,503,239
- -------------------------------------------------------------------------------------------------
Solectron Corp.* 212,110 1,049,945
- -------------------------------------------------------------------------------------------------
$4,522,547
- -------------------------------------------------------------------------------------------------
Pharmaceuticals - 6.7%
- -------------------------------------------------------------------------------------------------
Abbott Laboratories 44,750 $2,058,053
- -------------------------------------------------------------------------------------------------
Allergan, Inc. 15,680 1,178,822
- -------------------------------------------------------------------------------------------------
Eli Lilly & Co. 42,390 2,373,840
- -------------------------------------------------------------------------------------------------
Johnson & Johnson 49,500 3,247,200
- -------------------------------------------------------------------------------------------------
Wyeth 98,330 4,013,831
- -------------------------------------------------------------------------------------------------
$12,871,746
- -------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
- -------------------------------------------------------------------------------------------------
Waste Management, Inc. 10,980 $321,055
- -------------------------------------------------------------------------------------------------
Printing & Publishing - 0.1%
- -------------------------------------------------------------------------------------------------
Lamar Advertising Co., "A"* 3,660 $143,801
- -------------------------------------------------------------------------------------------------
Real Estate - 0.7%
- -------------------------------------------------------------------------------------------------
Boston Properties, Inc. 15,850 $947,830
- -------------------------------------------------------------------------------------------------
HomeBanc Corp. 49,760 481,179
- -------------------------------------------------------------------------------------------------
$1,429,009
- -------------------------------------------------------------------------------------------------
Restaurants - 0.6%
- -------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 20,320 $912,571
- -------------------------------------------------------------------------------------------------
Rare Hospitality International, Inc.* 11,380 332,979
- -------------------------------------------------------------------------------------------------
$1,245,550
- -------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.6%
- -------------------------------------------------------------------------------------------------
Lyondell Chemical Co. 88,720 $3,003,172
- -------------------------------------------------------------------------------------------------
Specialty Stores - 1.6%
- -------------------------------------------------------------------------------------------------
Circuit City Stores, Inc. 82,930 $1,296,196
- -------------------------------------------------------------------------------------------------
Gap, Inc. 15,000 319,950
- -------------------------------------------------------------------------------------------------
Regis Corp. 11,070 436,158
- -------------------------------------------------------------------------------------------------
Restoration Hardware, Inc.^* 73,550 390,551
- -------------------------------------------------------------------------------------------------
West Marine, Inc.^* 22,070 533,653
- -------------------------------------------------------------------------------------------------
$2,976,508
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.7%
- -------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR 49,550 $1,302,670
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.9%
- -------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 170,500 $2,970,110
- -------------------------------------------------------------------------------------------------
Research In Motion Ltd.* 9,270 612,840
- -------------------------------------------------------------------------------------------------
$3,582,950
- -------------------------------------------------------------------------------------------------
Telephone Services - 2.4%
- -------------------------------------------------------------------------------------------------
CenturyTel, Inc. 24,550 $825,862
- -------------------------------------------------------------------------------------------------
SpectraSite, Inc.* 6,910 427,038
- -------------------------------------------------------------------------------------------------
Sprint Corp. 116,340 2,754,931
- -------------------------------------------------------------------------------------------------
Syniverse Holdings, Inc.* 35,470 540,918
- -------------------------------------------------------------------------------------------------
$4,548,749
- -------------------------------------------------------------------------------------------------
Tobacco - 1.6%
- -------------------------------------------------------------------------------------------------
Altria Group, Inc. 47,210 $3,099,337
- -------------------------------------------------------------------------------------------------
Trucking - 1.5%
- -------------------------------------------------------------------------------------------------
CNF, Inc. 30,780 $1,411,879
- -------------------------------------------------------------------------------------------------
United Parcel Service, Inc., "B" 9,450 732,281
- -------------------------------------------------------------------------------------------------
Werner Enterprises, Inc.^ 38,250 818,550
- -------------------------------------------------------------------------------------------------
$2,962,710
- -------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.9%
- -------------------------------------------------------------------------------------------------
Cinergy Corp. 16,850 $681,583
- -------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc. 16,800 864,696
- -------------------------------------------------------------------------------------------------
Exelon Corp. 15,050 682,645
- -------------------------------------------------------------------------------------------------
PG&E Corp. 30,950 1,088,821
- -------------------------------------------------------------------------------------------------
PPL Corp. 18,650 1,017,182
- -------------------------------------------------------------------------------------------------
TXU Corp. 15,150 1,155,188
- -------------------------------------------------------------------------------------------------
$5,490,115
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $164,564,535) $187,615,453
- -------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 4.9%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 9,315,869 $9,315,869
- -------------------------------------------------------------------------------------------------
Repurchase Agreement - 3.4%
- -------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -------------------------------------------------------------------------------------------------
Morgan Stanley, 2.61%, dated 2/28/05, due 3/01/05, total to be received
$6,475,469 (secured by various U.S. Treasury and Federal Agency obligations in a
jointly traded account), at
Cost $6,475,000 $6,475,000
- -------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $180,355,404) $203,406,322
- -------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (6.6)% (12,537,035)
- -------------------------------------------------------------------------------------------------
Net Assets - 100.0% $190,869,287
- -------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/28/05
ASSETS
Investments, at value, including $9,050,360 of securities on
loan (identified cost, $180,355,404) $203,406,322
- -----------------------------------------------------------------------------------------------------
Cash 486
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 2,847
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 477,289
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 244,396
- -----------------------------------------------------------------------------------------------------
Other assets 720
- -----------------------------------------------------------------------------------------------------
Total assets $204,132,060
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $3,387,121
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 359,366
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 9,315,869
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 10,251
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 20,232
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 10,202
- -----------------------------------------------------------------------------------------------------
Administrative fee 169
- -----------------------------------------------------------------------------------------------------
Administrative service fee 13
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 159,550
- -----------------------------------------------------------------------------------------------------
Total liabilities $13,262,773
- -----------------------------------------------------------------------------------------------------
Net assets $190,869,287
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $169,254,070
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 23,050,918
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (1,223,826)
- -----------------------------------------------------------------------------------------------------
Accumulated net investment loss (211,875)
- -----------------------------------------------------------------------------------------------------
Net assets $190,869,287
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 11,227,306
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $96,260,714
- -----------------------------------------------------------------------------------------------------
Shares outstanding 5,542,366
- -----------------------------------------------------------------------------------------------------
Net asset value per share $17.37
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$17.37) $18.43
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $70,255,210
- -----------------------------------------------------------------------------------------------------
Shares outstanding 4,234,735
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.59
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $17,309,026
- -----------------------------------------------------------------------------------------------------
Shares outstanding 1,047,142
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.53
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $2,698,172
- -----------------------------------------------------------------------------------------------------
Shares outstanding 151,818
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $17.77
- -----------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $3,726,915
- -----------------------------------------------------------------------------------------------------
Shares outstanding 215,372
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $17.30
- -----------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $619,250
- -----------------------------------------------------------------------------------------------------
Shares outstanding 35,873
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $17.26
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
SIX MONTHS ENDED 2/28/05
NET INVESTMENT LOSS
Income
- -----------------------------------------------------------------------------------------------------
Dividends $1,322,151
- -----------------------------------------------------------------------------------------------------
Interest 60,240
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (9,790)
- -----------------------------------------------------------------------------------------------------
Total investment income $1,372,601
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $563,116
- -----------------------------------------------------------------------------------------------------
Trustees" compensation 6,465
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 167,009
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 136,389
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 371,652
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 82,725
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 8,222
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 1,518
- -----------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 759
- -----------------------------------------------------------------------------------------------------
Administrative fee 4,952
- -----------------------------------------------------------------------------------------------------
Custodian fee 30,376
- -----------------------------------------------------------------------------------------------------
Printing 44,866
- -----------------------------------------------------------------------------------------------------
Postage 7,921
- -----------------------------------------------------------------------------------------------------
Auditing fees 24,448
- -----------------------------------------------------------------------------------------------------
Legal fees 2,759
- -----------------------------------------------------------------------------------------------------
Miscellaneous 86,438
- -----------------------------------------------------------------------------------------------------
Total expenses $1,539,615
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (6,764)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (396)
- -----------------------------------------------------------------------------------------------------
Net expenses $1,532,455
- -----------------------------------------------------------------------------------------------------
Net investment loss $(159,854)
- -----------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $9,659,199
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions (146)
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $9,659,053
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $10,893,682
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies 199
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $10,893,881
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $20,552,934
- -----------------------------------------------------------------------------------------------------
Change in net assets from operations $20,393,080
- -----------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/28/05 8/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment loss $(159,854) $(250,658)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 9,659,053 17,255,617
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 10,893,881 (2,284,183)
- ---------------------------------------------------------------- ----------- -----------
Change in net assets from operations $20,393,080 $14,720,776
- ---------------------------------------------------------------- ----------- -----------
Change in net assets from fund share transactions $9,568,627 $1,733,217
- ---------------------------------------------------------------- ----------- -----------
Redemption fees $1,916 $--
- ---------------------------------------------------------------- ----------- -----------
Total change in net assets $29,963,623 $16,453,993
- ---------------------------------------------------------------- ----------- -----------
NET ASSETS
At beginning of period $160,905,664 $144,451,671
- -------------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment loss
of $211,875 and $52,021, respectively) $190,869,287 $160,905,664
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the fund's operation). Certain information reflects financial
results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS A 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $15.35 $13.97 $12.51 $15.15 $18.82 $17.87
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.01 $0.03 $0.04 $0.00+++ $0.02 $0.02
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.01 1.35 1.42 (2.38) (3.69) 2.26
- --------------------------------------- ------- ------ ------ ------ ------ ------
Total from investment operations $2.02 $1.38 $1.46 $(2.38) $(3.67) $2.28
- --------------------------------------- ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $(0.26) $-- $(1.33)
- --------------------------------------- ------- ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $-- $-- $-- $-- $--
- --------------------------------------- ------- ------ ------ ------ ------ ------
Net asset value, end of period $17.37 $15.35 $13.97 $12.51 $15.15 $18.82
- --------------------------------------- ------- ------ ------ ------ ------ ------
Total return (%)(+)& 13.16++ 9.88^^ 11.67 (16.00) (19.50) 13.76
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS A (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.44+ 1.38 1.47 1.37 1.32 1.28
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.15+ 0.22 0.29 0.03 0.12 0.13
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 116 121 100 78 74
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $96,258 $67,415 $53,704 $50,366 $63,319 $73,910
- -------------------------------------------------------------------------------------------------------------------------------
(S) Prior to January 1, 2000, the distributor voluntarily waived all or a portion of its distribution fee. Effective June 7,
2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially all
of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been incurred by the fund, the
net investment income per share and the ratios would have been:
Net investment income $0.01^ $0.03^ $-- $-- $-- $0.01
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.44+^ 1.38^ -- -- -- 1.32
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.15+^ 0.22^ -- -- -- 0.09
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS B 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $14.71 $13.48 $12.14 $14.81 $18.52 $17.72
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.04) $(0.06) $(0.04) $(0.09) $(0.09) $(0.09)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.92 1.29 1.38 (2.32) (3.62) 2.22
- --------------------------------------- ------- ------ ------ ------ ------ ------
Total from investment operations $1.88 $1.23 $1.34 $(2.41) $(3.71) $2.13
- --------------------------------------- ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $(0.26) $-- $(1.33)
- --------------------------------------- ------- ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $-- $-- $-- $-- $--
- --------------------------------------- ------- ------ ------ ------ ------ ------
Net asset value, end of period $16.59 $14.71 $13.48 $12.14 $14.81 $18.52
- --------------------------------------- ------- ------ ------ ------ ------ ------
Total return (%)& 12.78++ 9.12^^ 11.04 (16.57) (20.03) 12.98
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------
CLASS B (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.08+ 2.02 2.12 2.02 1.97 1.96
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.49)+ (0.43) (0.36) (0.62) (0.53) (0.55)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 116 121 100 78 74
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $70,258 $73,395 $75,007 $73,146 $91,455 $111,380
- -------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been incurred
by the fund, the net investment loss per share and the ratios would have been:
Net investment loss $(0.04)^ $(0.06)^ $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.08+^ 2.02^ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.49)+^ (0.43)^ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
+ 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 reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------------------------------------
CLASS C 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $14.66 $13.43 $12.10 $14.76 $18.46 $17.67
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.04) $(0.06) $(0.04) $(0.09) $(0.09) $(0.09)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.91 1.29 1.37 (2.31) (3.61) 2.21
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total from investment operations $1.87 $1.23 $1.33 $(2.40) $(3.70) $2.12
- --------------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $(0.26) $-- $(1.33)
- --------------------------------------- -------- ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $-- $-- $-- $-- $--
- --------------------------------------- -------- ------ ------ ------ ------ ------
Net asset value, end of period $16.53 $14.66 $13.43 $12.10 $14.76 $18.46
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total return (%)& 12.76++ 9.16^^ 10.99 (16.56) (20.04) 12.96
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------------------------------------
CLASS C (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.08+ 2.02 2.12 2.02 1.97 1.96
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.49)+ (0.43) (0.35) (0.62) (0.52) (0.55)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 116 121 100 78 74
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $17,309 $15,990 $15,325 $17,521 $22,081 $20,432
- -------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been incurred
by the fund, the net investment loss per share and the ratios would have been:
Net investment loss $(0.04)^ $(0.06)^ $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.08+^ 2.02^ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.49)+^ (0.43)^ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
+ 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 reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------------------------------------
CLASS I 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $15.68 $14.22 $12.69 $15.31 $18.95 $17.93
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.03 $0.09 $0.08 $0.06 $0.08 $0.08
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.06 1.37 1.45 (2.42) (3.72) 2.27
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total from investment operations $2.09 $1.46 $1.53 $(2.36) $(3.64) $2.35
- --------------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $(0.26) $-- $(1.33)
- --------------------------------------- -------- ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $-- $-- $-- $-- $--
- --------------------------------------- -------- ------ ------ ------ ------ ------
Net asset value, end of period $17.77 $15.68 $14.22 $12.69 $15.31 $18.95
- --------------------------------------- -------- ------ ------ ------ ------ ------
Total return (%)& ^
13.33++ 10.27^ 12.06 (15.70) (19.21) 14.12
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------------------------------------
CLASS I (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.13+ 1.03 1.12 1.02 0.97 0.97
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.54+ 0.56 0.65 0.38 0.47 0.45
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 116 121 100 78 74
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $2,698 $460 $398 $428 $486 $554
- -------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to
reimburse the fund for its proportional share of substantially all of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. If
this fee had been incurred by the fund, the net investment income per share
and the ratios would have been:
Net investment income $0.03^ $0.09^ $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.13+^ 1.03^ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.54+^ 0.56^ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
+ 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 reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 2/28/05 8/31/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $15.31 $13.96 $11.98^^^
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $0.00+++ $0.02 $(0.00)+++
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.99 1.33 1.98###
- -------------------------------------------------------------- -------- ------ ------
Total from investment operations $1.99 $1.35 $1.98
- -------------------------------------------------------------- -------- ------ ------
Redemption fees added to paid-in capital# $0.00+++ $-- $--
- -------------------------------------------------------------- -------- ------ ------
Net asset value, end of period $17.30 $15.31 $13.96
- -------------------------------------------------------------- -------- ------ ------
Total return (%)& 13.00++ 9.67^^ 16.53++^^^
- ---------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 (CONTINUED) 2/28/05 8/31/04 8/31/03*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.58+ 1.49 1.74+
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.02+ 0.13 (0.04)+
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 116 121
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $3,727 $3,030 $17
- ---------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer services paid to Tarantino LLC. If this fee had been incurred by
the fund, the net investment income per share and the ratios would have been:
Net investment income $0.00+++^ $0.02^ $--
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.58+^ 1.49^ --
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 0.02+^ 0.13^ --
- ---------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The per share amount is not in accordance with the net realized and unrealized gain/loss for the period because of the
timing of sales of fund shares and the amount of per share realized and unrealized gains and losses at such time.
^ The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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.
^^^ The net asset value and total return previously reported as $12.02 and 16.14%, respectively, have been revised to reflect
the net asset value from the day prior to the class" inception date. The net asset value and total return previously
reported were from inception date, the date the share class was first available to public shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED PERIOD ENDED
CLASS R2 2/28/05 8/31/04*
(UNAUDITED)
Net asset value, beginning of period $15.29 $14.57
- --------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.02) $0.03
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.99 0.69###
- ---------------------------------------------------------------------- -------- ------
Total from investment operations $1.97 $0.72
- ---------------------------------------------------------------------- -------- ------
Redemption fees added to paid-in capital# $0.00+++ $--
- ---------------------------------------------------------------------- -------- ------
Net asset value, end of period $17.26 $15.29
- ---------------------------------------------------------------------- -------- ------
Total return (%)& 12.88++ 4.94++^^^
- --------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.83+ 1.80+
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.24)+ 0.27+
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 55 116
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $619 $616
- --------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of substantially all of Independent Chief Compliance Officer services paid to
Tarantino LLC. If these fees had been incurred by the fund, the net investment income (loss) per
share and the ratios would have been:
Net investment income (loss) $(0.02)^ $0.03^
- --------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.83+^ 1.80+^
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.24)+^ 0.27+^
- --------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The per share amount is not in accordance with the net realized and unrealized gain/ loss for the
period because of the timing of sales of fund shares and the amount of per share realized and
unrealized gains and losses at such time.
^ The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a
result of an administrative proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales, as described in the Legal Proceedings and Transactions with Affiliates
footnotes. The non-recurring accrual 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.
& From time to time the fund may receive proceeds from litigation settlements, without which
performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Core Equity Fund (the fund) is a diversified series of MFS Series Trust I
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open- end
management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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. Money market mutual funds are
valued at net asset value. Investment valuations, other assets, and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates. 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.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned. State Street
provides the fund with indemnification against Borrower default. The fund bears
the risk of loss with respect to the investment of cash collateral. On loans
collateralized by cash, the cash collateral is invested in a money market fund
or short-term securities. A portion of the income generated upon investment of
the collateral is remitted to the Borrowers, and the remainder is allocated
between the fund and the lending agent. On loans collateralized by U.S. Treasury
securities, a fee is received from the Borrower, and is allocated between the
fund and the lending agent. Income from securities lending is included in
interest income on the Statement of Operations. The dividend and interest income
earned on the securities loaned is accounted for in the same manner as other
dividend and interest income.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, the fund charged 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). Effective April 1, 2005, the fund no longer charges a redemption
fee. See the fund's prospectus for details. Any redemption fees charged 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. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss in
the statement of operations, or in unrealized gain/loss if the security is still
held by the fund.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. During the six months ended February 28, 2005, the fund's custodian fees
were reduced by $1,965 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the fund
a portion of the commissions generated, to offset certain expenses of the fund.
For the six months ended February 28, 2005, the fund's miscellaneous expenses
were reduced by $4,799 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, wash sales, and capital losses.
The fund paid no distributions for the years ended August 31, 2004 and August
31, 2003.
As of August 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(10,383,451)
----------------------------------------------------------
Unrealized appreciation (depreciation) 11,657,609
----------------------------------------------------------
Other temporary differences (52,021)
----------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration on August 31, 2011.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates are
generally due to differences in separate class expenses. Class B shares will
convert to Class A shares approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at the following annual
rates:
First $500 million of average net assets 0.65%
----------------------------------------------------------
Average net assets in excess of $500 million 0.55%
----------------------------------------------------------
The fund pays compensation to 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). The fund has an unfunded
defined benefit plan for retired Independent Trustees and an unfunded retirement
benefit deferral plan for current Independent Trustees. Included in Trustees"
compensation is $2,541 as a result of the change in the fund's unfunded
retirement benefit deferral plan for certain current Independent Trustees and a
pension expense of $991 for retired Independent Trustees for the six months
ended February 28, 2005.
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. On July 28,
2004, the fund accrued an estimate of the amount to be received pursuant to this
matter in the amount of $52,378, which 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. The proceeds were paid to the fund on February 16, 2005.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. 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. The fund
paid MFS an administrative fee up to the following annual percentage rates of
the fund's average daily net assets:
EFFECTIVE DATE
-------------------------
4/01/04 3/01/05
First $2 billion 0.01120% 0.01626%
- ---------------------------------------------------------------------------
Next $2.5 billion 0.00832% 0.01206%
- ---------------------------------------------------------------------------
Next $2.5 billion 0.00032% 0.00056%
- ---------------------------------------------------------------------------
In excess of $7 billion 0.00000% 0.00000%
- ---------------------------------------------------------------------------
The March 1, 2005 rates were not effective during the current reporting period.
For the six months ended February 28, 2005, the fund paid MFS $4,952 equivalent
to 0.00572% 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
$10,849 for the six months ended February 28, 2005, as its portion of the sales
charge on sales of Class A shares of the fund.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class R1, and Class R2 shares pursuant to Rule 12b-1 of the Investment Company
Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD an annual
percentage of its average daily net assets attributable to certain share classes
as compensation for services provided by MFD and financial intermediaries in
connection with the distribution and servicing of its shares. One component of
the plan is a distribution fee and another is a service fee paid by MFD to
financial intermediaries that enter into sales or service agreements with MFD or
its affiliates based on the average daily net assets of accounts attributable to
such intermediaries. The fees are calculated based on each class" average daily
net assets. The maximum distribution and service fees for each class of shares
are as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------------------
MFD may retain all or a portion of the service fee, including for accounts for which there is no
financial intermediary of record. Service fees retained by MFD for the six months ended February 28, 2005
amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $1,723 $342 $218 $0 $14
- -----------------------------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February 28, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual Percentage Rates 0.35% 1.00% 1.00% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales charge in the event of a
shareholder redemption within, for Class A shares, 12 months following the purchase, and, for Class C
shares, the first year 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 of purchase. MFD
receives all contingent deferred sales charges. Contingent deferred sales charges imposed during the six
months ended February 28, 2005 were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $718 $45,175 $561
- ----------------------------------------------------------------------------------------------------------
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 December 31, 2004, the fund was charged up to 0.0861% of its
average daily net assets. For the period January 1, 2005 through February 28,
2005, the fund is charged up to 0.1035% of its average daily net assets. For the
six months ended February 28, 2005, the fund paid MFSC a fee of $79,412 for
shareholder services which equated to 0.0917% of the fund's average daily net
assets. Effective March 1, 2005, the fund is charged up to 0.1159% of its
average daily net assets. Shareholder service costs include out of pocket
expenses and sub accounting services expenses paid by MFSC on behalf of the fund
and subsequently reimbursed to MFSC which amounted to $60,948, and other costs
paid by the fund directly to unaffiliated vendors for the six months ended
February 28, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$107,085,004 and $94,516,988, 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 $180,854,832
----------------------------------------------------------
Gross unrealized appreciation $26,230,009
----------------------------------------------------------
Gross unrealized depreciation (3,678,519)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $22,551,490
----------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 1,753,364 $29,838,071 1,920,069 $28,691,770
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (602,668) (9,969,495) (1,372,319) (21,034,291)
- -----------------------------------------------------------------------------------------------------------
Net change 1,150,696 $19,868,576 547,750 $7,657,479
- -----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 339,673 $5,467,261 1,298,612 $18,903,690
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (1,093,612) (17,511,961) (1,875,435) (27,742,705)
- -----------------------------------------------------------------------------------------------------------
Net change (753,939) $(12,044,700) (576,823) $(8,839,015)
- -----------------------------------------------------------------------------------------------------------
Six months ended 2/28/05 Year ended 8/31/04*
SHARES AMOUNT SHARES AMOUNT
CLASS C SHARES
Shares sold 130,355 $2,094,679 241,139 $3,496,748
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (173,961) (2,743,745) (291,465) (4,264,486)
- -----------------------------------------------------------------------------------------------------------
Net change (43,606) $(649,066) (50,326) $(767,738)
- -----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 129,456 $2,280,445 7,449 $113,720
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (6,974) (117,393) (6,092) (93,354)
- -----------------------------------------------------------------------------------------------------------
Net change 122,482 $2,163,052 1,357 $20,366
- -----------------------------------------------------------------------------------------------------------
CLASS R1 SHARES
Shares sold 28,196 $477,256 431,299 $6,712,888
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (10,761) (177,181) (234,601) (3,650,907)
- -----------------------------------------------------------------------------------------------------------
Net change 17,435 $300,075 196,698 $3,061,981
- -----------------------------------------------------------------------------------------------------------
CLASS R2 SHARES
Shares sold 2,237 $36,430 79,265 $1,178,842
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (6,642) (105,740) (38,987) (578,698)
- -----------------------------------------------------------------------------------------------------------
Net change (4,405) $(69,310) 40,278 $600,144
- -----------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the 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 six months ended February 28, 2005 was $587, and
is included in miscellaneous expense. The fund had no significant borrowings
during the six months ended February 28, 2005.
(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. 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 intermediaries who support the sale of MFS fund shares. 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. The final distribution plan
was approved by the SEC on January 21, 2005 and the affected MFS funds received
the payment on February 16, 2005.
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 open-end retail fund ("MFS retail funds")
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 they prohibited market
timing, MFS did not limit trading activity in 11 domestic large cap stock, high
grade bond and money market retail funds. MFS" former Chief Executive Officer
and former President 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. These individuals
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, MFS Fund Distributors, Inc., MFS Service Center, Inc.,
MFS Corporation Retirement Committee, Sun Life Financial Inc., various MFS
funds, certain current and/or former 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 ERISA actions by
participants in certain retirement plan accounts on behalf of those 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, Allianz Dresdner), No. 1:04-md-15863
(transfer began March 19, 2004)). The market timing cases related to the MFS
complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM (direct), Hammerslough
v. MFS et al., Case No. 04-md-01620 (derivative) and Anita Walker v. MFS et al.,
Case No. 1:04-CV-01758 (ERISA). The plaintiffs in these consolidated lawsuits
generally seek injunctive relief including removal of the named Trustees,
adviser and distributor, rescission of contracts and 12b-1 Plans, disgorgement
of fees and profits, monetary damages, punitive damages, attorney's fees and
costs and other equitable and declaratory relief. Two 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) (a consolidated action) and
Marcus Dumond, et al. v. Massachusetts Financial Servs. Co., et al., No.
04cv11458 (GAO)). The plaintiffs in these lawsuits generally seek compensatory
damages, punitive damages, recovery of fees, rescission of contracts, an
accounting, restitution, declaratory relief, equitable and/or injunctive relief
and attorney's fees and costs. The various 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 (ii) received excessive
compensation as fiduciaries to the MFS funds, or (iii) 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. 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 certain 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 distributed $50 million 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.
- -------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
- -------------------------------------------------------------------------------
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.
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.
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
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
RGI-SEM-04/05 29M
MFS(R) CORE GROWTH FUND 2/28/05
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
SEMIANNUAL REPORT
LETTER FROM THE CEO 1
-------------------------------------------------
PORTFOLIO COMPOSITION 4
-------------------------------------------------
MANAGEMENT REVIEW 5
-------------------------------------------------
PERFORMANCE SUMMARY 7
-------------------------------------------------
EXPENSE TABLE 11
-------------------------------------------------
PORTFOLIO OF INVESTMENTS 13
-------------------------------------------------
FINANCIAL STATEMENTS 19
-------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 34
-------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 46
-------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 46
-------------------------------------------------
CONTACT INFORMATION BACK COVER
-------------------------------------------------
- -------------------------------------------------------------------------------
LETTER FROM THE CEO
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Last summer and fall, I wrote to you about enhancements that MFS(R) was making
to its investment process. Our goal, as always, was to deliver strong
performance across all asset classes. I am now happy to report to you that 2004
was a very successful year for MFS, relative to our peers in the mutual fund
industry. While there will always be room for improvement, we believe the
enhancements we have made to our investment process resulted in significantly
improved performance across the MFS Family of Funds(R).
You may remember some of the enhancements I outlined last year.
They included
o increasing collaboration and information sharing among our investment
personnel across asset classes, through an Investment Management Committee
with members from our Domestic Equity, International Equity, Fixed Income,
and Quantitative Research teams
o increasing the number of analysts supporting our portfolio managers and
doubling the average investment experience of our domestic equity analyst
staff
o making additional use of our most-seasoned portfolio managers to mentor
research analysts
o combining more quantitative, top-down risk control and security analysis
with our traditional bottom-up research process
o opening a research office in Mexico City to complement our existing staff in
Boston, London, Singapore, and Tokyo
The effect of these enhancements, I believe, is evident in the 2004 performance
of our funds. For the 12 months ended December 31, 2004, 80% of MFS domestic
equity funds, 100% of MFS international equity funds, and 80% of MFS fixed-
income funds delivered results in the top half of their Lipper peer groups.
Our longer-term performance also benefited from our ongoing commitment to the
MFS Original Research(R) process: more than 75% of MFS funds were in the top
half of their respective Lipper categories over the 3-, 5-, and 10-year periods
ended December 31, 2004.
Of course, I cannot offer any guarantees that our performance will repeat
itself. Still, I am confident that the recent enhancements to our investment
process will continue to benefit shareholders in 2005 and beyond.
What I can tell you with certainty is that the way you manage your investments
will determine how well you take advantage of the performance that financial
markets deliver. Historically, individual investors have tended to underperform
the markets. For example, a 2003 study by DALBAR, Inc. showed that over the
nearly two decades from 1984 through 2002, the average U.S. stock investor
earned a 2.6% average annual return at a time when U.S. stocks, as measured by
the Standard & Poor's 500 Stock Index, delivered a 12.2% average annual
return.(1)
This huge discrepancy, in our view, occurred because nonprofessional investors
generally did not adhere to the basic principles followed by most professional
investors: allocate among asset classes, diversify within each asset class, and
rebalance one's portfolio on a routine schedule. I elaborated on this "ADR"
theme in fund reports over the last few months of 2004. For more information on
how to apply a Disciplined Diversification(SM) strategy to your portfolio using
the principles of ADR, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Web site, MFS.COM.
As always, we appreciate your confidence in MFS, and you can be sure of our
continued commitment to do the best we can to help you pursue your long-term
financial goals.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
April 15, 2005
It is not possible to invest directly in an index.
Lipper rankings and performance are based on historical average annual returns
of Class A shares, and do not include any sales charges. Past performance is no
guarantee of future results.
Asset allocation and diversification cannot guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
(1) Source: DALBAR July 2003 update to its Quantitative Analysis of Investment
Behavior; DALBAR, Inc., is a financial-services market research firm
headquartered in Boston, MA.
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
PORTFOLIO STRUCTURE
Stocks 94.7%
Cash & Other Net Assets 5.3%
TOP TEN HOLDINGS
Johnson & Johnson 3.7%
-----------------------------------------
Cisco Systems, Inc. 2.5%
-----------------------------------------
Wyeth 2.1%
-----------------------------------------
Dell, Inc. 2.0%
-----------------------------------------
WellPoint, Inc. 2.0%
-----------------------------------------
Microsoft Corp. 2.0%
-----------------------------------------
Genzyme Corp. 1.9%
-----------------------------------------
PepsiCo, Inc. 1.8%
-----------------------------------------
CVS Corp. 1.8%
-----------------------------------------
Electronic Arts, Inc. 1.8%
-----------------------------------------
SECTOR WEIGHTINGS
Health Care 24.4%
-----------------------------------------
Technology 21.1%
-----------------------------------------
Retailing 9.9%
-----------------------------------------
Leisure 9.4%
-----------------------------------------
Financial Services 6.9%
-----------------------------------------
Consumer Staples 6.2%
-----------------------------------------
Industrial Goods & Services 4.6%
-----------------------------------------
Basic Materials 2.8%
-----------------------------------------
Energy 2.7%
-----------------------------------------
Special Products & Services 1.9%
-----------------------------------------
Transportation 1.8%
-----------------------------------------
Autos & Housing 1.6%
-----------------------------------------
Utilities & Communications 1.4%
-----------------------------------------
Percentages are based on net assets as of 2/28/05.
The portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
SUMMARY OF RESULTS
For the six months ended February 28, 2005, Class A shares of the MFS Core
Growth Fund provided a total return of 9.59%, not including sales charges. In
comparison, the fund's benchmark, the Russell 1000 Growth Index, returned 7.67%.
The fund's investment objective is capital appreciation. The fund invests, under
normal market conditions, at least 65% of its net assets in common stocks and
related securities, such as preferred stock, convertible securities and
depositary receipts of well-known and established companies which MFS believes
have above-average growth potential. The fund may also invest in emerging growth
companies.
MARKET ENVIRONMENT
Over the period, many measures of global economic growth, including employment
and corporate spending, continued to improve, although we feel that high oil
prices, rising short-term interest rates in the United States, a significant
decline in the value of the U.S. dollar against most major currencies, and
geopolitical uncertainty, impacted markets. But, oil prices pulled back from
their record levels toward the end of 2004 and, in our view, investors seemed to
turn their attention to strong corporate profits and economic growth.
CONTRIBUTORS TO PERFORMANCE
The technology, health care, and basic materials sectors were among the fund's
most significant contributors to relative performance over the period. Stock
selection was the major driver of positive results in all three sectors.
In technology, our position in communications company Marvell Technology, which
is not in the index, contributed to the fund's relative returns as the stock
significantly outperformed the broad index over the period. In health care, our
decisions to underweight Pfizer* and avoid Merck also boosted relative results.
In the basic materials sector, our position in strong-performing agribusiness
company Monsanto, which is not in the benchmark, proved positive.
Other factors that aided results included our avoidance of Fannie Mae, our
underweighting of Wal-Mart, and our overweighting of oilfield services company
Halliburton, video game publisher Electronic Arts, Latin American wireless
telecommunications provider America Movil and drug store retailer CVS Corp.
DETRACTORS TO PERFORMANCE
Stock selection in the special products and services sector detracted from
relative performance. Our overweighted positions in technology consulting firm
Accenture Ltd. and post-secondary education provider Career Education Corp.,
which is not in the index, held back results for the period.
Stock selection in the industrial goods and services and autos and housing
sectors also dampened relative performance, although no individual stocks within
those sectors were among the fund's top detractors.
Although technology and health care were our top contributing sectors during the
period, some of our positioning hurt performance. Our decision to underweight
strong-performing technology stocks Intel* and Apple Computer detracted from
results. In health care, our decision to overweight biopharmaceutical firm
ImClone and to underweight UnitedHealth Group* proved disappointing. Other
detractors during the period included consumer staples companies
Colgate-Palmolive* and Avon Products and financial services company Citigroup*.
The fund's cash position held back relative performance. As with nearly all
mutual funds, this fund holds some cash to buy new holdings and to provide
liquidity. In a period when growth equity markets - as measured by the Russell
1000 Growth Index - rose measurably, holding any cash hurt performance relative
to our benchmark, which does not have a cash position.
Respectfully,
/s/ Margaret W. Adams /s/ Stephen Pesek
Margaret W. Adams Stephen Pesek
Portfolio Manager Portfolio Manager
* Security was not held in the portfolio at period-end.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or 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.
- ------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/28/05
- ------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including the reinvestment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR I SHARES CALL 1-888-808-6374.) 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. HIGH
SHORT-TERM RETURNS FOR ANY PERIOD MAY BE AND LIKELY WERE ATTRIBUTABLE TO
FAVORABLE MARKET CONDITIONS DURING THAT PERIOD, WHICH MAY NOT BE REPEATABLE. THE
PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/2/96 9.59% 4.68% -0.19% -7.98% 11.70%
- ------------------------------------------------------------------------------
B 12/31/99 9.16% 4.00% -0.82% -8.57% 11.30%
- ------------------------------------------------------------------------------
C 12/31/99 9.16% 4.00% -0.82% -8.56% 11.31%
- ------------------------------------------------------------------------------
I 1/2/97 9.75% 5.05% 0.16% -7.66% 11.94%
- ------------------------------------------------------------------------------
R1** 12/31/02 9.46% 4.48% -0.27% -8.02% 11.67%
- ------------------------------------------------------------------------------
R2** 10/31/03 9.34% 4.29% -0.35% -8.07% 11.64%
- ------------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks
- ------------------------------------------------------------------------------
Average large cap
growth fund+ 8.80% 1.73% 0.73% -8.98% 5.77%
- ------------------------------------------------------------------------------
Russell 1000 Growth Index# 7.67% 1.13% 1.06% -9.71% 6.49%
- ------------------------------------------------------------------------------
- --------------------
Average annual
with sales charge
- --------------------
Share class 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 3.28% -1.34% -2.14% -9.06% 10.98%
- ------------------------------------------------------------------------------
B 5.16% 0.00% -1.82% -8.93% 11.30%
- ------------------------------------------------------------------------------
C 8.16% 3.00% -0.82% -8.56% 11.31%
- ------------------------------------------------------------------------------
I, RI and R2 Class shares do not have a sales charge. Please see Notes to
Performance Summary for details.
- --------------------
Cumulative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 9.59% 4.68% -0.56% -34.01% 175.42%
- ------------------------------------------------------------------------------
B 9.16% 4.00% -2.44% -36.11% 166.57%
- ------------------------------------------------------------------------------
C 9.16% 4.00% -2.44% -36.08% 166.67%
- ------------------------------------------------------------------------------
I 9.75% 5.05% 0.49% -32.86% 180.87%
- ------------------------------------------------------------------------------
R1** 9.46% 4.48% -0.80% -34.18% 174.73%
- ------------------------------------------------------------------------------
R2** 9.34% 4.29% -1.05% -34.34% 174.05%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through February 28, 2005. Index information is from January
1, 1996.
** Effective April 1, 2005, Class R1 shares have been renamed "Class R shares",
and Class R2 shares have been renamed "Class R3 shares". In addition, on
April 1, 2005, the fund launched the following new R Classes: R1, R2, R4, and
R5. All references herein to Class R1 and Class R2 shares are as of February
28, 2005 and do not reflect the renaming of Class R1 and Class R2 shares.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
Periods less than one year are actual, not annualized.
INDEX DEFINITION
Russell 1000 Growth Index - is constructed to provide a comprehensive barometer
for growth securities in the large-cap segment of the U.S. equity universe.
Companies in this index generally have higher price-to-book ratios and higher
forecasted growth values.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results including sales charge reflect the deduction of the maximum
5.75% sales charge. Class B results including sales charge reflect the deduction
of the applicable contingent deferred sales charge (CDSC), which declines over
six years from 4% to 0%. Class C results including sales charge (assuming
redemption within one year from the end of the prior month of purchase) reflect
the deduction of the 1% CDSC. Class I shares have no sales charges and are
available only to certain investors. Class R1 and R2 shares have no sales
charges and are available only to certain retirement plans.
Performance for share classes offered after Class A shares includes the
performance of the fund's Class A shares for periods prior to their offering.
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 share class to which it is blended, and
lower performance for share classes with lower operating expenses than the 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.
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. The
proceeds were paid to the fund on February 16, 2005.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
The portfolio may invest in foreign and/or emerging markets securities, which
are more susceptible to 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.
The portfolio may be susceptible to market risk, which is the risk that the
price of a security held by the portfolio will fall due to changing economic,
political or market conditions or disappointing earnings results.
Prices of securities held by the portfolio react to the economic condition of
the company that issued the security. The portfolio's investments in an issuer
may rise and fall based on the issuer's actual and anticipated earnings, changes
in management and the potential for takeovers and acquisitions. Companies may be
less likely to pay dividends in difficult economic environments.
The prices of growth company securities held by the portfolio may fall to a
greater extent than the overall equity markets (e.g., as represented by the
Standard and Poor's Composite 500 Index) due to changing economic, political or
market conditions or disappointing growth company earnings results.
Over-the-Counter (OTC) transactions involve risks in addition to those
associated with transactions in securities traded on exchanges. OTC-listed
companies may have limited product lines, markets or financial resources. Many
OTC stocks trade less frequently and in smaller volume than exchange-listed
stocks. The values of these stocks may be more volatile than exchange-listed
stocks, and the portfolio may experience difficulty in purchasing or selling
these securities at a fair price.
The portfolio has engaged and may engage in active and frequent trading to
achieve its principal investment strategies. This may result in the realization
and distribution to shareholders of higher capital gains as compared to a
portfolio with less active trading policies, which would increase your tax
liability unless you hold your shares through a tax-deferred or exempt vehicle
(such as an Individual Retirement Account (IRA). Frequent trading also increases
transaction costs, which could detract from the fund's performance.
Please see the prospectus for further information regarding these and other risk
considerations.
- -------------------------------------------------------------------------------
EXPENSE TABLE
- -------------------------------------------------------------------------------
FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM SEPTEMBER 1, 2004,
THROUGH FEBRUARY 28, 2005.
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, September 1, 2004 through February 28,
2005.
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 9/01/04 2/28/05 9/01/04-2/28/05
- -------------------------------------------------------------------------------
Actual 1.21% $1,000 $1,096 $6.29
A ---------------------------------------------------------------------
Hypothetical* 1.21% $1,000 $1,019 $6.06
- -----------------------------------------------------------------------------
Actual 1.86% $1,000 $1,092 $9.65
B ---------------------------------------------------------------------
Hypothetical* 1.86% $1,000 $1,016 $9.30
- -----------------------------------------------------------------------------
Actual 1.86% $1,000 $1,092 $9.65
C ---------------------------------------------------------------------
Hypothetical* 1.86% $1,000 $1,016 $9.30
- -----------------------------------------------------------------------------
Actual 0.86% $1,000 $1,098 $4.47
I ---------------------------------------------------------------------
Hypothetical* 0.86% $1,000 $1,021 $4.31
- -----------------------------------------------------------------------------
Actual 1.36% $1,000 $1,095 $7.06
R1 ---------------------------------------------------------------------
Hypothetical* 1.36% $1,000 $1,018 $6.80
- -----------------------------------------------------------------------------
Actual 1.62% $1,000 $1,093 $8.41
R2 ---------------------------------------------------------------------
Hypothetical* 1.62% $1,000 $1,017 $8.10
- -----------------------------------------------------------------------------
* 5% class return per year before expenses.
** 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 (unaudited) -2/28/05
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Stocks - 94.7%
- ----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------
Aerospace - 0.5%
- ----------------------------------------------------------------------------------------------
Boeing Co. 30,100 $1,654,597
- ----------------------------------------------------------------------------------------------
Northrop Grumman Corp. 30,300 1,602,870
- ----------------------------------------------------------------------------------------------
$3,257,467
- ----------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.9%
- ----------------------------------------------------------------------------------------------
Nike, Inc., "B" 45,500 $3,956,225
- ----------------------------------------------------------------------------------------------
Reebok International Ltd. 40,000 1,766,400
- ----------------------------------------------------------------------------------------------
$5,722,625
- ----------------------------------------------------------------------------------------------
Automotive - 1.6%
- ----------------------------------------------------------------------------------------------
Harley-Davidson, Inc. 169,200 $10,470,096
- ----------------------------------------------------------------------------------------------
Banks & Credit Companies - 2.9%
- ----------------------------------------------------------------------------------------------
American Express Co. 123,100 $6,665,865
- ----------------------------------------------------------------------------------------------
Countrywide Financial Corp. 117,900 4,097,025
- ----------------------------------------------------------------------------------------------
SLM Corp. 160,000 7,808,000
- ----------------------------------------------------------------------------------------------
$18,570,890
- ----------------------------------------------------------------------------------------------
Biotechnology - 5.1%
- ----------------------------------------------------------------------------------------------
Amgen, Inc.* 154,600 $9,524,906
- ----------------------------------------------------------------------------------------------
Celgene Corp.QQ* 118,000 3,230,250
- ----------------------------------------------------------------------------------------------
Genentech, Inc.* 28,200 1,331,040
- ----------------------------------------------------------------------------------------------
Genzyme Corp.* 214,500 12,031,305
- ----------------------------------------------------------------------------------------------
Gilead Sciences, Inc.* 92,500 3,195,875
- ----------------------------------------------------------------------------------------------
ImClone Systems, Inc.QQ* 79,100 3,500,966
- ----------------------------------------------------------------------------------------------
$32,814,342
- ----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.9%
- ----------------------------------------------------------------------------------------------
Comcast Corp., "A"* 175,500 $5,712,525
- ----------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR 100,000 6,445,000
- ----------------------------------------------------------------------------------------------
Time Warner, Inc.* 56,600 975,218
- ----------------------------------------------------------------------------------------------
Univision Communications, Inc., "A"* 96,800 2,554,552
- ----------------------------------------------------------------------------------------------
Walt Disney Co. 341,700 9,547,098
- ----------------------------------------------------------------------------------------------
$25,234,393
- ----------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.9%
- ----------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 85,200 $9,269,760
- ----------------------------------------------------------------------------------------------
Legg Mason, Inc. 37,100 2,991,744
- ----------------------------------------------------------------------------------------------
$12,261,504
- ----------------------------------------------------------------------------------------------
Business Services - 1.3%
- ----------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 263,800 $6,740,090
- ----------------------------------------------------------------------------------------------
Fiserv, Inc.* 50,200 1,904,588
- ----------------------------------------------------------------------------------------------
$8,644,678
- ----------------------------------------------------------------------------------------------
Chemicals - 2.5%
- ----------------------------------------------------------------------------------------------
3M Co. 70,100 $5,884,194
- ----------------------------------------------------------------------------------------------
Dow Chemical Co. 37,300 2,057,095
- ----------------------------------------------------------------------------------------------
Monsanto Co. 135,600 7,970,568
- ----------------------------------------------------------------------------------------------
$15,911,857
- ----------------------------------------------------------------------------------------------
Computer Software - 7.3%
- ----------------------------------------------------------------------------------------------
Amdocs Ltd.* 255,300 $7,493,055
- ----------------------------------------------------------------------------------------------
Business Objects S.A., ADRQQ* 50,100 1,400,796
- ----------------------------------------------------------------------------------------------
Check Point Software Technologies Ltd.* 28,200 624,066
- ----------------------------------------------------------------------------------------------
Computer Associates International, Inc. 49 1,327
- ----------------------------------------------------------------------------------------------
Mercury Interactive Corp.QQ* 94,600 4,340,248
- ----------------------------------------------------------------------------------------------
Microsoft Corp. 500,000 12,590,000
- ----------------------------------------------------------------------------------------------
Oracle Corp.* 856,600 11,058,706
- ----------------------------------------------------------------------------------------------
Symantec Corp.* 438,700 9,655,787
- ----------------------------------------------------------------------------------------------
$47,163,985
- ----------------------------------------------------------------------------------------------
Computer Software - Systems - 2.5%
- ----------------------------------------------------------------------------------------------
Apple Computer, Inc.* 43,400 $1,946,924
- ----------------------------------------------------------------------------------------------
Dell, Inc.* 323,600 12,973,124
- ----------------------------------------------------------------------------------------------
International Business Machines Corp. 13,900 1,286,862
- ----------------------------------------------------------------------------------------------
$16,206,910
- ----------------------------------------------------------------------------------------------
Consumer Goods & Services - 4.6%
- ----------------------------------------------------------------------------------------------
Apollo Group, Inc., "A"QQ* 42,100 $3,100,244
- ----------------------------------------------------------------------------------------------
Avon Products, Inc. 117,400 5,021,198
- ----------------------------------------------------------------------------------------------
Career Education Corp.* 22,000 751,300
- ----------------------------------------------------------------------------------------------
Gillette Co. 75,400 3,788,850
- ----------------------------------------------------------------------------------------------
Procter & Gamble Co. 212,100 11,260,389
- ----------------------------------------------------------------------------------------------
Reckitt Benckiser PLC 175,800 5,541,936
- ----------------------------------------------------------------------------------------------
$29,463,917
- ----------------------------------------------------------------------------------------------
Electrical Equipment - 3.1%
- ----------------------------------------------------------------------------------------------
Danaher Corp. 57,200 $3,098,524
- ----------------------------------------------------------------------------------------------
General Electric Co. 56,400 1,985,280
- ----------------------------------------------------------------------------------------------
Tyco International Ltd. 337,600 11,302,848
- ----------------------------------------------------------------------------------------------
W.W. Grainger, Inc. 52,000 3,264,560
- ----------------------------------------------------------------------------------------------
$19,651,212
- ----------------------------------------------------------------------------------------------
Electronics - 5.0%
- ----------------------------------------------------------------------------------------------
Analog Devices, Inc. 275,800 $10,127,376
- ----------------------------------------------------------------------------------------------
KLA-Tencor Corp. 70,900 3,503,169
- ----------------------------------------------------------------------------------------------
Marvell Technology Group Ltd.* 98,542 3,605,652
- ----------------------------------------------------------------------------------------------
Symbol Technologies, Inc. 97,200 1,723,356
- ----------------------------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co. Ltd., ADRQQ 320,800 2,925,696
- ----------------------------------------------------------------------------------------------
Texas Instruments, Inc. 174,700 4,624,309
- ----------------------------------------------------------------------------------------------
Xilinx, Inc. 190,100 5,741,020
- ----------------------------------------------------------------------------------------------
$32,250,578
- ----------------------------------------------------------------------------------------------
Energy - Independent - 0.5%
- ----------------------------------------------------------------------------------------------
EOG Resources, Inc. 32,900 $2,997,848
- ----------------------------------------------------------------------------------------------
Food & Drug Stores - 1.8%
- ----------------------------------------------------------------------------------------------
CVS Corp. 232,300 $11,575,509
- ----------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 2.2%
- ----------------------------------------------------------------------------------------------
Groupe Danone 10,600 $1,057,005
- ----------------------------------------------------------------------------------------------
PepsiCo, Inc. 215,700 11,617,602
- ----------------------------------------------------------------------------------------------
SYSCO Corp. 46,700 1,607,414
- ----------------------------------------------------------------------------------------------
$14,282,021
- ----------------------------------------------------------------------------------------------
Gaming & Lodging - 1.6%
- ----------------------------------------------------------------------------------------------
Carnival Corp. 186,200 $10,125,556
- ----------------------------------------------------------------------------------------------
General Merchandise - 3.1%
- ----------------------------------------------------------------------------------------------
J.C. Penney Co., Inc. 42,400 $1,886,376
- ----------------------------------------------------------------------------------------------
Kohl's Corp.* 81,200 3,887,044
- ----------------------------------------------------------------------------------------------
Target Corp. 168,400 8,558,088
- ----------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc.QQ 105,900 5,465,499
- ----------------------------------------------------------------------------------------------
$19,797,007
- ----------------------------------------------------------------------------------------------
Health Maintenance Organizations - 2.0%
- ----------------------------------------------------------------------------------------------
WellPoint, Inc.* 104,400 $12,743,064
- ----------------------------------------------------------------------------------------------
Insurance - 2.1%
- ----------------------------------------------------------------------------------------------
AFLAC, Inc. 66,900 $2,564,277
- ----------------------------------------------------------------------------------------------
American International Group, Inc. 165,200 11,035,360
- ----------------------------------------------------------------------------------------------
$13,599,637
- ----------------------------------------------------------------------------------------------
Internet - 1.3%
- ----------------------------------------------------------------------------------------------
eBay, Inc.* 90,800 $3,889,872
- ----------------------------------------------------------------------------------------------
Google, Inc., "A"* 8,400 1,579,116
- ----------------------------------------------------------------------------------------------
Yahoo!, Inc.* 85,400 2,755,858
- ----------------------------------------------------------------------------------------------
$8,224,846
- ----------------------------------------------------------------------------------------------
Leisure & Toys - 2.0%
- ----------------------------------------------------------------------------------------------
Electronic Arts, Inc.* 177,900 $11,472,771
- ----------------------------------------------------------------------------------------------
Nintendo Co. Ltd. 14,500 1,610,109
- ----------------------------------------------------------------------------------------------
$13,082,880
- ----------------------------------------------------------------------------------------------
Machinery & Tools - 1.0%
- ----------------------------------------------------------------------------------------------
Caterpillar, Inc. 35,200 $3,345,760
- ----------------------------------------------------------------------------------------------
Illinois Tool Works, Inc. 35,500 3,186,125
- ----------------------------------------------------------------------------------------------
$6,531,885
- ----------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.7%
- ----------------------------------------------------------------------------------------------
Caremark Rx, Inc.* 91,500 $3,502,620
- ----------------------------------------------------------------------------------------------
HCA, Inc. 25,600 1,208,576
- ----------------------------------------------------------------------------------------------
$4,711,196
- ----------------------------------------------------------------------------------------------
Medical Equipment - 6.8%
- ----------------------------------------------------------------------------------------------
Beckman Coulter, Inc.QQ 49,800 $3,508,410
- ----------------------------------------------------------------------------------------------
Boston Scientific Corp.* 111,900 3,654,654
- ----------------------------------------------------------------------------------------------
C.R. Bard, Inc. 23,900 1,589,350
- ----------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.* 170,100 10,316,565
- ----------------------------------------------------------------------------------------------
Guidant Corp. 54,500 3,999,755
- ----------------------------------------------------------------------------------------------
Kinetic Concepts, Inc.* 10,100 658,823
- ----------------------------------------------------------------------------------------------
Medtronic, Inc. 218,900 11,409,068
- ----------------------------------------------------------------------------------------------
St. Jude Medical, Inc.* 44,200 1,728,220
- ----------------------------------------------------------------------------------------------
Waters Corp.* 35,700 1,743,945
- ----------------------------------------------------------------------------------------------
Zimmer Holdings, Inc.* 62,700 5,385,930
- ----------------------------------------------------------------------------------------------
$43,994,720
- ----------------------------------------------------------------------------------------------
Metals & Mining - 0.3%
- ----------------------------------------------------------------------------------------------
Companhia Vale do Rio Doce, ADR 50,300 $1,760,500
- ----------------------------------------------------------------------------------------------
Oil Services - 2.2%
- ----------------------------------------------------------------------------------------------
GlobalSantaFe Corp. 74,800 $2,805,000
- ----------------------------------------------------------------------------------------------
Halliburton Co. 253,100 11,128,807
- ----------------------------------------------------------------------------------------------
$13,933,807
- ----------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.3%
- ----------------------------------------------------------------------------------------------
EMC Corp.* 649,300 $8,220,138
- ----------------------------------------------------------------------------------------------
Pharmaceuticals - 9.8%
- ----------------------------------------------------------------------------------------------
Abbott Laboratories 242,800 $11,166,372
- ----------------------------------------------------------------------------------------------
Allergan, Inc. 17,100 1,285,578
- ----------------------------------------------------------------------------------------------
Eli Lilly & Co. 133,400 7,470,400
- ----------------------------------------------------------------------------------------------
Johnson & Johnson 359,600 23,589,760
- ----------------------------------------------------------------------------------------------
Roche Holdings AGQQ 57,700 6,088,071
- ----------------------------------------------------------------------------------------------
Wyeth 322,900 13,180,778
- ----------------------------------------------------------------------------------------------
$62,780,959
- ----------------------------------------------------------------------------------------------
Printing & Publishing - 0.9%
- ----------------------------------------------------------------------------------------------
McGraw-Hill Cos., Inc. 62,900 $5,777,365
- ----------------------------------------------------------------------------------------------
Railroad & Shipping - 0.5%
- ----------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 56,900 $2,860,363
- ----------------------------------------------------------------------------------------------
Restaurants - 1.0%
- ----------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 67,800 $3,044,898
- ----------------------------------------------------------------------------------------------
YUM! Brands, Inc. 74,500 3,634,110
- ----------------------------------------------------------------------------------------------
$6,679,008
- ----------------------------------------------------------------------------------------------
Specialty Stores - 4.1%
- ----------------------------------------------------------------------------------------------
Abercrombie & Fitch Co., "A" 48,000 $2,577,600
- ----------------------------------------------------------------------------------------------
Best Buy Co., Inc. 70,400 3,803,008
- ----------------------------------------------------------------------------------------------
Lowe's Cos., Inc. 173,500 10,198,330
- ----------------------------------------------------------------------------------------------
PETsMART, Inc. 83,500 2,546,750
- ----------------------------------------------------------------------------------------------
Staples, Inc. 127,900 4,031,408
- ----------------------------------------------------------------------------------------------
TJX Cos., Inc. 135,300 3,304,026
- ----------------------------------------------------------------------------------------------
$26,461,122
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.9%
- ----------------------------------------------------------------------------------------------
America Movil S.A. de C.V., ADR 34,900 $2,048,630
- ----------------------------------------------------------------------------------------------
Vodafone Group PLC 1,465,800 3,838,928
- ----------------------------------------------------------------------------------------------
$5,887,558
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 3.7%
- ----------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 924,800 $16,110,016
- ----------------------------------------------------------------------------------------------
Corning, Inc.* 361,100 4,141,817
- ----------------------------------------------------------------------------------------------
QUALCOMM, Inc. 104,900 3,787,939
- ----------------------------------------------------------------------------------------------
$24,039,772
- ----------------------------------------------------------------------------------------------
Telephone Services - 0.5%
- ----------------------------------------------------------------------------------------------
Sprint Corp. 139,500 $3,303,360
- ----------------------------------------------------------------------------------------------
Trucking - 1.3%
- ----------------------------------------------------------------------------------------------
CNF, Inc. 50,000 $2,293,500
- ----------------------------------------------------------------------------------------------
FedEx Corp. 60,200 5,886,356
- ----------------------------------------------------------------------------------------------
$8,179,856
- ----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $540,400,333) $609,174,431
- ----------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 4.3%
- ----------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 27,442,402 $27,442,402
- ----------------------------------------------------------------------------------------------
Repurchase Agreement - 4.6%
- ----------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ----------------------------------------------------------------------------------------------
Morgan Stanley, 2.61%, dated 2/28/05, due 3/01/05, total to be received
$29,431,134 (secured by various U.S. Treasury and Federal Agency obligations in
a jointly traded account), at
Cost $29,429,000 $29,429,000
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $597,271,735) $666,045,833
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (3.6)% (23,129,637)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $642,916,196
- ----------------------------------------------------------------------------------------------
*Non-income producing security. QQAll or a portion of this security is on loan.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/28/05
ASSETS
Investments, at value, including $26,621,315 of securities
on loan (identified cost, $597,271,735) $666,045,833
- --------------------------------------------------------------------------------------------------
Cash 555
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 9,404,092
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 782,457
- --------------------------------------------------------------------------------------------------
Interest and dividends receivable 525,320
- --------------------------------------------------------------------------------------------------
Total assets $676,758,257
- --------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $4,554,058
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 1,477,406
- --------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 27,442,402
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 34,513
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 115,297
- --------------------------------------------------------------------------------------------------
Distribution and service fee 30,470
- --------------------------------------------------------------------------------------------------
Administrative fee 566
- --------------------------------------------------------------------------------------------------
Administrative service fee 2
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 187,347
- --------------------------------------------------------------------------------------------------
Total liabilities $33,842,061
- --------------------------------------------------------------------------------------------------
Net assets $642,916,196
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $694,409,240
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 68,774,098
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (120,159,145)
- --------------------------------------------------------------------------------------------------
Accumulated net investment loss (107,997)
- --------------------------------------------------------------------------------------------------
Net assets $642,916,196
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 40,326,622
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $412,034,038
- --------------------------------------------------------------------------------------------------
Shares outstanding 25,560,159
- --------------------------------------------------------------------------------------------------
Net asset value per share $16.12
- --------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$16.12) $17.10
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $135,637,600
- --------------------------------------------------------------------------------------------------
Shares outstanding 8,688,026
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.61
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $86,662,264
- --------------------------------------------------------------------------------------------------
Shares outstanding 5,550,601
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.61
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $4,256,104
- --------------------------------------------------------------------------------------------------
Shares outstanding 258,843
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $16.44
- --------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $4,232,760
- --------------------------------------------------------------------------------------------------
Shares outstanding 263,167
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $16.08
- --------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $93,430
- --------------------------------------------------------------------------------------------------
Shares outstanding 5,826
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $16.04
- --------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- --------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
SIX MONTHS ENDED 2/28/05
NET INVESTMENT LOSS
Income
- --------------------------------------------------------------------------------------------------
Dividends $4,342,116
- --------------------------------------------------------------------------------------------------
Interest 202,440
- --------------------------------------------------------------------------------------------------
Foreign taxes withheld (7,625)
- --------------------------------------------------------------------------------------------------
Total investment income $4,536,931
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Management fee $2,426,253
- --------------------------------------------------------------------------------------------------
Trustees' compensation 10,011
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 324,385
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 718,822
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 693,161
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 451,085
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 9,970
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 276
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 138
- --------------------------------------------------------------------------------------------------
Administrative fee 18,020
- --------------------------------------------------------------------------------------------------
Custodian fee 107,505
- --------------------------------------------------------------------------------------------------
Printing 67,971
- --------------------------------------------------------------------------------------------------
Postage 31,473
- --------------------------------------------------------------------------------------------------
Auditing fees 24,708
- --------------------------------------------------------------------------------------------------
Legal fees 11,355
- --------------------------------------------------------------------------------------------------
Miscellaneous 74,211
- --------------------------------------------------------------------------------------------------
Total expenses $4,969,344
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (38,172)
- --------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (320,351)
- --------------------------------------------------------------------------------------------------
Net expenses $4,610,821
- --------------------------------------------------------------------------------------------------
Net investment loss $(73,890
- --------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $56,910,174
- --------------------------------------------------------------------------------------------------
Foreign currency transactions (6,860)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $56,903,314
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- --------------------------------------------------------------------------------------------------
Investments $2,103,717
- --------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (37)
- --------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $2,103,680
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $59,006,994
- --------------------------------------------------------------------------------------------------
Change in net assets from operations $58,933,104
- --------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/28/05 8/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment loss $(73,890) $(5,201,107)
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 56,903,314 69,898,609
- ---------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 2,103,680 (47,792,510)
- ---------------------------------------------------------- ------------ -------------
Change in net assets from operations $58,933,104 $16,904,992
- ---------------------------------------------------------- ------------ -------------
Change in net assets from fund share transactions $(57,488,660) $(144,281,991)
- ---------------------------------------------------------- ------------ -------------
Redemption fees $1,884 $1,504
- ---------------------------------------------------------- ------------ -------------
Total change in net assets $1,446,328 $(127,375,495)
- ---------------------------------------------------------- ------------ -------------
NET ASSETS
At beginning of period $641,469,868 $768,845,363
- ---------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $107,997 and $34,107, respectively) $642,916,196 $641,469,868
- ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the fund's operation). Certain information reflects financial
results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------------
CLASS A 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
period $14.71 $14.41 $13.22 $16.89 $27.51 $19.46
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income
(loss)(S) $0.02 $(0.07) $(0.07) $(0.12) $(0.11) $(0.16)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 1.39 0.37 1.26 (3.55) (9.73) 9.75
- --------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $1.41 $0.30 $1.19 $(3.67) $(9.84) $9.59
- --------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(0.53) $(1.54)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency
transactions -- -- -- -- (0.25) --
- --------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $-- $-- $-- $-- $(0.78) $(1.54)
- --------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- --------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $16.12 $14.71 $14.41 $13.22 $16.89 $27.51
- --------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+)& 9.59++ 2.08QQ 9.00 (21.73) (36.57) 51.38
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------------
CLASS A (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.21+ 1.36 1.42 1.47 1.52 1.25
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.21+ (0.47) (0.52) (0.76) (0.56) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 94 261 312 257 283 303
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $412,034 $404,511 $496,271 $417,986 $111,062 $10,833
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. The investment adviser
voluntarily agreed under a temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive
of management and distribution and service fees from January 1, 2000 through July 30, 2002. In consideration, the fund paid
the investment adviser a reimbursement fee not greater than 0.40% of the average daily net assets. Prior to January 1,
2000, the investment adviser and distributor voluntarily waived their fees. In consideration, the fund paid the investment
adviser a fee not greater than 1.50% of average daily net assets. If these fees had been incurred by the fund, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.01 $(0.08) $-- $(0.11) $(0.12) $(0.39)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.31+ 1.41 -- 1.43 1.57 2.20
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.11+ (0.52) -- (0.72) (0.61) (1.64)
- ------------------------------------------------------------------------------------------------------------------------------
+ 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.
QQ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual resulted in an
increase in the net asset value of $0.01 per share based on shares outstanding on the day the proceeds were recorded. The
proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ------------------------------------------------------------ ENDED
CLASS B 2/28/05 2004 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning
of period $14.30 $14.09 $13.01 $16.72 $27.41 $23.56QQQ
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.03) $(0.16) $(0.15) $(0.22) $(0.23) $(0.28)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency 1.34 0.37 1.23 (3.49) (9.70) 4.13
- ------------------------------ ------ ------ ------ ------ ------ ------
Total from investment
operations $1.31 $0.21 $1.08 $(3.71) $(9.93) $3.85
- ------------------------------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain
on investments and
foreign currency
transactions $-- $-- $-- $-- $(0.52) $--
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on
investments and foreign
currency transactions -- -- -- -- (0.24) --
- ------------------------------ ------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $-- $-- $-- $-- $(0.76) $--
- ------------------------------ ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ------------------------------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $15.61 $14.30 $14.09 $13.01 $16.72 $27.41
- ------------------------------ ------ ------ ------ ------ ------ ------
Total return (%)& 9.16++ 1.49QQ 8.22 (22.13) (37.01) 16.30++QQQ
- ---------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ------------------------------------------------------------ ENDED
CLASS B (CONTINUED) 2/28/05 2004 2003 2002 2001 8/31/00*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.86+ 2.00 2.07 2.12 2.17 2.15+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.45)+ (1.11) (1.18) (1.41) (1.20) (1.51)+
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 94 261 312 257 283 303
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of
period (000 Omitted) $135,638 $138,226 $155,602 $114,619 $68,839 $8,795
- ---------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. The investment adviser
voluntarily agreed under a temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive
of management and distribution and service fees from January 1, 2000 through July 30, 2002. In consideration, the fund paid
the investment adviser a reimbursement fee not greater than 0.40% of the average daily net assets. If these fees had been
incurred by the fund, the net investment loss per share and the ratios would have been:
Net investment loss $(0.04) $(0.17) $-- $(0.21) $(0.24) $(0.40)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.96+ 2.05 -- 2.08 2.22 2.85+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.55)+ (1.16) -- (1.37) (1.25) (2.21)+
- ---------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class B shares, December 31, 1999, through August 31, 2000.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
QQ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual resulted in an
increase in the net asset value of $0.01 per share based on shares outstanding on the day the proceeds were recorded. The
proceeds were paid to the fund on February 16, 2005.
QQQ The net asset value and total return previously reported as $23.88 and 14.74%, respectively, have been revised to reflect
the net asset value from the day prior to the class' inception date. The net asset value and total return previously
reported were from inception date, the date the share class was first available to public shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ---------------------------------------------------------- ENDED
CLASS C 2/28/05 2004 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning of
period $14.30 $14.10 $13.02 $16.73 $27.43 $23.56QQQ
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.03) $(0.16) $(0.15) $(0.22) $(0.23) $(0.27)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 1.34 0.36 1.23 (3.49) (9.70) 4.14
- -------------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $1.31 $0.20 $1.08 $(3.71) $(9.93) $3.87
- -------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(0.53) $--
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency
transactions -- -- -- -- (0.24) --
- -------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $-- $-- $-- $-- $(0.77) $--
- -------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- -------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end
of period $15.61 $14.30 $14.10 $13.02 $16.73 $27.43
- -------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 9.16++ 1.42QQ 8.29 (22.18) (36.99) 16.38++QQQ
- ---------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ---------------------------------------------------------- ENDED
CLASS C (CONTINUED) 2/28/05 2004 2003 2002 2001 8/31/00*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.86+ 2.00 2.07 2.12 2.17 2.15+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.45)+ (1.12) (1.18) (1.41) (1.20) (1.50)+
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 94 261 312 257 283 303
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $86,662 $91,225 $110,786 $82,441 $45,879 $4,750
- ---------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. The investment adviser
voluntarily agreed under a temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive
of management and distribution and service fees from January 1, 2000 through July 30, 2002. In consideration, the fund paid
the investment adviser a reimbursement fee not greater than 0.40% of the average daily net assets. If these fees had been
incurred by the fund, the net investment loss per share and the ratios would have been:
Net investment loss $(0.04) $(0.17) $-- $(0.21) $(0.24) $(0.39)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.96+ 2.05 -- 2.08 2.22 2.85+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.55)+ (1.17) -- (1.37) (1.25) (2.22)+
- ---------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class C shares, December 31, 1999, through August 31, 2000.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
QQ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual resulted in an
increase in the net asset value of $0.01 per share based on shares outstanding on the day the proceeds were recorded. The
proceeds were paid to the fund on February 16, 2005.
QQQ The net asset value and total return previously reported as $23.88 and 14.82%, respectively, have been revised to reflect
the net asset value from the day prior to the class' inception date. The net asset value and total return previously
reported were from inception date, the date the share class was first available to public shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS I 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $14.98 $14.63 $13.37 $17.01 $27.63 $19.47
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income (loss)(S) $0.04 $(0.02) $(0.02) $(0.06) $(0.03) $(0.09)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 1.42 0.37 1.28 (3.58) (9.80) 9.79
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $1.46 $0.35 $1.26 $(3.64) $(9.83) $9.70
- ------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(0.54) $(1.54)
- -----------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- -- (0.25) --
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $-- $-- $-- $-- $(0.79) $(1.54)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $16.44 $14.98 $14.63 $13.37 $17.01 $27.63
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 9.75++ 2.39QQ 9.42 (21.40) (36.39) 51.77
- -----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS I (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.86+ 1.01 1.07 1.12 1.15 0.94
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.55+ (0.11) (0.16) (0.39) (0.14) (0.37)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 94 261 312 257 283 303
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $4,256 $4,136 $4,317 $4,403 $7,381 $11,483
- -----------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. The investment adviser
voluntarily agreed under a temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive
of management and distribution and service fees from January 1, 2000 through July 30, 2002. In consideration, the fund paid
the investment adviser a reimbursement fee not greater than 0.40% of the average daily net assets. If these fees had been
incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.04 $(0.02) $-- $(0.06) $(0.04) $(0.39)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.96+ 1.06 -- 1.08 1.20 1.84
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.46+ (0.16) -- (0.35) (0.19) (1.27)
- -----------------------------------------------------------------------------------------------------------------------------
+ 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.
QQ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual resulted in an
increase in the net asset value of $0.01 per share based on shares outstanding on the day the proceeds were recorded. The
proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R12/28/05 8/31/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $14.69 $14.41 $12.35
- ---------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $0.00+++ $(0.09) $(0.08)
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.39 0.37 2.14###
- -------------------------------------------------------- ------ ------ ------
Total from investment operations $1.39 $0.28 $2.06
- -------------------------------------------------------- ------ ------ ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $--
- -------------------------------------------------------- ------ ------ ------
Net asset value, end of period $16.08 $14.69 $14.41
- -------------------------------------------------------- ------ ------ ------
Total return (%)& 9.46++ 1.94QQ 16.68++
- ---------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.36+ 1.51 1.65+
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.04+ (0.60) (0.82)+
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover 94 261 312
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $4,233 $3,266 $1,869
- ---------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In
addition, effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for
its proportional share of substantially all of Independent Chief Compliance Officer services paid to
Tarantino LLC. If these fees had been incurred by the fund, the net investment loss per share and the ratios
would have been:
Net investment loss $(0.00)+++ $(0.10) $--
- ---------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.46+ 1.56 --
- ---------------------------------------------------------------------------------------------------------------
Net investment loss (0.06)+ (0.65) --
- ---------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01. # Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The per share amount is not in accordance with the net realized and unrealized gain/loss for the period
because of the timing of the sales of fund shares and the amount of the per share realized and unrealized
gains and losses at such time.
QQ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result
of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with
fund sales, as described in the Legal Proceedings and Transactions with Affiliates footnotes. The
non-recurring accrual resulted in an increase in the net asset value of $0.01 per share based on shares
outstanding on the day the proceeds were recorded. The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would
be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS PERIOD
ENDED ENDED
CLASS R2 2/28/05 8/31/04*
(UNAUDITED)
Net asset value, beginning of period $14.67 $14.63(+)
- ---------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01) $(0.06)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 1.38 0.10###
- ----------------------------------------------------------------------- ------ ------
Total from investment operations $1.37 $0.04
- ----------------------------------------------------------------------- ------ ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++
- ----------------------------------------------------------------------- ------ ------
Net asset value, end of period $16.04 $14.67
- ----------------------------------------------------------------------- ------ ------
Total return (%)& 9.34++ 0.27++QQ(+)
- ---------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.62+ 1.90+
- ---------------------------------------------------------------------------------------------------
Net investment loss (0.19)+ (0.48)+
- ---------------------------------------------------------------------------------------------------
Portfolio turnover 94 261
- ---------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $93 $105
- ---------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods
indicated. In addition, effective June 7, 2004, the investment adviser has voluntarily agreed to
reimburse the fund for its proportional share of substantially all of Independent Chief
Compliance Officer services paid to Tarantino LLC. If these fees had been incurred by the fund,
the net investment loss per share and the ratios would have been:
Net investment loss $(0.01) $(0.07)
- ---------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.72+ 1.95+
- -----------------------------------------------------------------------------------------------------
Net investment loss (0.29)+ (0.53)+
- -----------------------------------------------------------------------------------------------------
* For the period from inception of Class R2 shares, October 31, 2003, through August 31, 2004.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The per share amount is not in accordance with the net realized and unrealized gain/loss for the
period because of the timing of the sales of fund shares and the amount of the per share
realized and unrealized gains and losses at such time.
QQ The fund's net asset value and total return calculation include a non-recurring accrual recorded
as a result of an administrative proceeding regarding disclosure of brokerage allocation
practices in connection with fund sales, as described in the Legal Proceedings and Transactions
with Affiliates footnotes. The non-recurring accrual resulted in an increase in the net asset
value of $0.01 per share based on shares outstanding on the day the proceeds were recorded. The
proceeds were paid to the fund on February 16, 2005.
(+) The net asset value and total return previously reported as $14.64 and 0.20%, respectively, have
been revised to reflect the net asset value from the day prior to the class' inception date. The
net asset value and total return previously reported were from inception date, the date the
share class was first available to public shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which
performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Core Growth Fund (the fund) is a diversified series of MFS Series Trust I
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open- end
management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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. Money market mutual funds are
valued at net asset value. Investment valuations, other assets, and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates. 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.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned. State Street
provides the fund with indemnification against Borrower default. The fund bears
the risk of loss with respect to the investment of cash collateral. On loans
collateralized by cash, the cash collateral is invested in a money market fund
or short-term securities. A portion of the income generated upon investment of
the collateral is remitted to the Borrowers, and the remainder is allocated
between the fund and the lending agent. On loans collateralized by U.S. Treasury
securities, a fee is received from the Borrower, and is allocated between the
fund and the lending agent. Income from securities lending is included in
interest income on the Statement of Operations. The dividend and interest income
earned on the securities loaned is accounted for in the same manner as other
dividend and interest income.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, the fund charged 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). Effective April 1, 2005, the fund will no longer charge a
redemption fee. See the fund's prospectus for details. Any redemption fees
charged 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. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss in
the statement of operations, or in unrealized gain/loss if the security is still
held by the fund.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. During the six months ended February 28, 2005, the fund's custodian fees
were reduced by $14,578 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the fund
a portion of the commissions generated, to offset certain expenses of the fund.
For the six months ended February 28, 2005, the fund's miscellaneous expenses
were reduced by $23,594 under this agreement. These amounts are shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions and wash sales.
The fund paid no distributions for the years ended August 31, 2004 and August
31, 2003.
As of August 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(142,703,648)
----------------------------------------------------------
Unrealized appreciation 32,311,607
----------------------------------------------------------
Other temporary differences (34,107)
----------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration on:
EXPIRATION DATE
March 31, 2010 $(13,415,606)
----------------------------------------------------------
March 31, 2011 (129,288,042)
----------------------------------------------------------
Total $(142,703,648)
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MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates are
generally due to differences in separate class expenses. Class B shares will
convert to Class A shares approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
the fund's average daily net assets.
As part of a settlement agreement with the New York Attorney General concerning
market timing and related matters (See Legal Proceedings footnote), MFS has
agreed to reduce the fund's management fee to 0.65% of average daily net assets
for the period March 1, 2004 through February 28, 2009, which is shown as a
reduction of total expenses in the Statement of Operations. During this time
period, the Board of Trustees will continue to review the appropriateness of all
advisory fees in accordance with their oversight responsibilities. After
February 28, 2009 the management fee will be determined in accordance with then
existing review policies approved by the Board of Trustees overseeing the fund.
Management fees incurred for the six months ended February 28, 2005 were an
effective rate of 0.65% of average daily net assets on an annualized basis.
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). The fund has an unfunded
defined benefit plan for retired Independent Trustees and an unfunded retirement
benefit deferral plan for current Independent Trustees. Included in Trustees'
compensation is $1,879 as a result of the change in the fund's unfunded
retirement benefit deferral plan for certain current Independent Trustees and a
pension expense of $364 for retired Independent Trustees for the six months
ended February 28, 2005.
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. On July 28,
2004, the fund accrued an estimate of the amount to be received pursuant to this
matter in the amount of $589,873, which resulted in an increase in net asset
value of $0.01 per share based on the shares outstanding on the day the proceeds
were recorded. The proceeds were paid to the fund on February 16, 2005.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. 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. The fund
paid MFS an administrative fee up to the following annual percentage rates of
the fund's average daily net assets:
BEGINNING OF
PERIOD THROUGH
EFFECTIVE DATE 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
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Next $2.5 billion 0.00832% 0.01206%
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Next $2.5 billion 0.00032% 0.00056%
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In excess of $7 billion 0.00000% 0.00000%
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The March 1, 2005 rates were not effective during the current reporting period.
For the six months ended February 28, 2005, the fund paid MFS $18,020,
equivalent to 0.0056% 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
$21,716 for the six months ended February 28, 2005, as its portion of the sales
charge on sales of Class A shares of the fund.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class R1, and Class R2 shares pursuant to Rule 12b-1 of the Investment Company
Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD an annual
percentage of its average daily net assets attributable to certain share classes
as compensation for services provided by MFD and financial intermediaries in
connection with the distribution and servicing of its shares. One component of
the plan is a distribution fee and another is a service fee paid by MFD to
financial intermediaries that enter into sales or service agreements with MFD or
its affiliates based on the average daily net assets of accounts attributable to
such intermediaries. The fees are calculated based on each class' average daily
net assets. The maximum distribution and service fees for each class of shares
are as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- --------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------
MFD may retain all or a portion of the service fee, including for accounts for
which there is no financial intermediary of record. Service fees retained by MFD
for the six months ended February 28, 2005 amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by
MFD $9,220 $447 $558 $8 $13
- --------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February
28, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual
Percentage Rates 0.35% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within, for Class A shares, 12
months following the purchase, and, for Class C shares, the first year 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 of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended February
28, 2005 were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales
Charges Imposed $5,289 $162,544 $4,223
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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. For the period July 1, 2004 through December 31, 2004, the fund was
charged up to 0.0861% of its average daily net assets. For the period January 1,
2005 through February 28, 2005, the fund is charged up to 0.1035% of its average
daily net assets. For the six months ended February 28, 2005, the fund paid MFSC
a fee of $295,563 for shareholder services which equated to 0.0912% of the
fund's average daily net assets. Effective March 1, 2005, the fund is charged up
to 0.1159% of its average daily net assets. Shareholder service costs include
out of pocket expenses and sub accounting services expenses paid by MFSC on
behalf of the fund and subsequently reimbursed to MFSC, and other costs paid by
the fund directly to unaffiliated vendors for the six months ended February 28,
2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$592,063,146 and $668,444,871, 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 $631,630,546
------------------------------------------------------------
Gross unrealized appreciation $73,021,667
------------------------------------------------------------
Gross unrealized depreciation (38,606,380)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $33,415,287
------------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 3,233,716 $50,395,100 10,626,969 $158,101,180
- --------------------------------------------------------------------------------------------------------
Shares reacquired (5,163,664) (80,667,593) (17,569,674) (262,111,271)
- --------------------------------------------------------------------------------------------------------
Net change (1,929,948) $(30,272,493) (6,942,705) $(104,010,091)
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 371,984 $5,703,817 2,054,497 $29,865,095
- --------------------------------------------------------------------------------------------------------
Shares reacquired (1,352,042) (20,595,795) (3,426,834) (49,782,232)
- --------------------------------------------------------------------------------------------------------
Net change (980,058) $(14,891,978) (1,372,337) $(19,917,137)
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 415,896 $6,309,375 1,747,376 $25,401,296
- --------------------------------------------------------------------------------------------------------
Shares reacquired (1,245,656) (18,976,026) (3,226,826) (46,906,587)
- --------------------------------------------------------------------------------------------------------
Net change (829,760) $(12,666,651) (1,479,450) $(21,505,291)
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 23,932 $384,451 39,694 $605,358
- --------------------------------------------------------------------------------------------------------
Shares reacquired (41,152) (653,786) (58,806) (894,652)
- --------------------------------------------------------------------------------------------------------
Net change (17,220) $(269,335) (19,112) $(289,294)
- --------------------------------------------------------------------------------------------------------
CLASS R1 SHARES
Shares sold 88,356 $1,388,443 320,957 $4,749,392
- --------------------------------------------------------------------------------------------------------
Shares reacquired (47,466) (755,040) (228,340) (3,418,826)
- --------------------------------------------------------------------------------------------------------
Net change 40,890 $633,403 92,617 $1,330,566
- --------------------------------------------------------------------------------------------------------
CLASS R2 SHARES
Six months ended 2/28/05 Period ended 8/31/04*
Shares sold 1,284 $20,486 13,975 $213,149
- --------------------------------------------------------------------------------------------------------
Shares reacquired (2,629) (42,092) (6,804) (103,893)
- --------------------------------------------------------------------------------------------------------
Net change (1,345) $(21,606) 7,171 $109,256
- --------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the 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 six months ended February 28, 2005 was $2,027, and
is included in miscellaneous expense. The fund had no significant borrowings
during the six months ended February 28, 2005.
(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. 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 intermediaries who support the sale of MFS fund shares. 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. The final distribution plan
was approved by the SEC on January 21, 2005 and the affected MFS funds received
the payment on February 16, 2005.
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 open-end retail fund ("MFS retail funds")
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 they prohibited market
timing, MFS did not limit trading activity in 11 domestic large cap stock, high
grade bond and money market retail funds. MFS' former Chief Executive Officer
and former President 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. These individuals
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, MFS Fund Distributors, Inc., MFS Service Center, Inc.,
MFS Corporation Retirement Committee, Sun Life Financial Inc., various MFS
funds, certain current and/or former 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 ERISA actions by
participants in certain retirement plan accounts on behalf of those 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, Allianz Dresdner), No. 1:04-md-15863
(transfer began March 19, 2004)). The market timing cases related to the MFS
complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM (direct), Hammerslough
v. MFS et al., Case No. 04-md-01620 (derivative) and Anita Walker v. MFS et al.,
Case No. 1:04-CV-01758 (ERISA). The plaintiffs in these consolidated lawsuits
generally seek injunctive relief including removal of the named Trustees,
adviser and distributor, rescission of contracts and 12b-1 Plans, disgorgement
of fees and profits, monetary damages, punitive damages, attorney's fees and
costs and other equitable and declaratory relief. Two 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) (a consolidated action) and
Marcus Dumond, et al. v. Massachusetts Financial Servs. Co., et al., No.
04cv11458 (GAO)). The plaintiffs in these lawsuits generally seek compensatory
damages, punitive damages, recovery of fees, rescission of contracts, an
accounting, restitution, declaratory relief, equitable and/or injunctive relief
and attorney's fees and costs. The various 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 (ii) received excessive
compensation as fiduciaries to the MFS funds, or (iii) 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. 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 certain 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 distributed $50 million 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.
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PROXY VOTING POLICIES AND INFORMATION
- ------------------------------------------------------------------------------
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.
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QUARTERLY PORTFOLIO DISCLOSURE
- ------------------------------------------------------------------------------
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.
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.
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
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
CGF-SEM-04/05 60M
MFS(R) NEW DISCOVERY FUND 2/28/05
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
SEMIANNUAL REPORT
LETTER FROM THE CEO 1
------------------------------------------------------
PORTFOLIO COMPOSITION 4
------------------------------------------------------
MANAGEMENT REVIEW 5
------------------------------------------------------
PERFORMANCE SUMMARY 7
------------------------------------------------------
EXPENSE TABLE 12
------------------------------------------------------
PORTFOLIO OF INVESTMENTS 14
------------------------------------------------------
FINANCIAL STATEMENTS 23
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 46
------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 59
------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 59
------------------------------------------------------
CONTACT INFORMATION BACK COVER
------------------------------------------------------
- -------------------------------------------------------------------------------
LETTER FROM THE CEO
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Last summer and fall, I wrote to you about enhancements that MFS(R) was making
to its investment process. Our goal, as always, was to deliver strong
performance across all asset classes. I am now happy to report to you that
2004 was a very successful year for MFS, relative to our peers in the mutual
fund industry. While there will always be room for improvement, we believe the
enhancements we have made to our investment process resulted in significantly
improved performance across the MFS Family of Funds(R).
You may remember some of the enhancements I outlined last year.
They included
o increasing collaboration and information sharing among our investment
personnel across asset classes, through an Investment Management Committee
with members from our Domestic Equity, International Equity, Fixed Income,
and Quantitative Research teams
o increasing the number of analysts supporting our portfolio managers and
doubling the average investment experience of our domestic equity analyst
staff
o making additional use of our most-seasoned portfolio managers to mentor
research analysts
o combining more quantitative, top-down risk control and security analysis
with our traditional bottom-up research process
o opening a research office in Mexico City to complement our existing staff
in Boston, London, Singapore, and Tokyo
The effect of these enhancements, I believe, is evident in the 2004 performance
of our funds. For the 12 months ended December 31, 2004, 80% of MFS domestic
equity funds, 100% of MFS international equity funds, and 80% of MFS fixed-
income funds delivered results in the top half of their Lipper peer groups.
Our longer-term performance also benefited from our ongoing commitment to the
MFS Original Research(R) process: more than 75% of MFS funds were in the top
half of their respective Lipper categories over the 3-, 5-, and 10-year periods
ended December 31, 2004.
Of course, I cannot offer any guarantees that our performance will repeat
itself. Still, I am confident that the recent enhancements to our investment
process will continue to benefit shareholders in 2005 and beyond.
What I can tell you with certainty is that the way you manage your investments
will determine how well you take advantage of the performance that financial
markets deliver. Historically, individual investors have tended to underperform
the markets. For example, a 2003 study by DALBAR, Inc. showed that over the
nearly two decades from 1984 through 2002, the average U.S. stock investor
earned a 2.6% average annual return at a time when U.S. stocks, as measured by
the Standard & Poor's 500 Stock Index, delivered a 12.2% average annual
return.(1)
This huge discrepancy, in our view, occurred because nonprofessional investors
generally did not adhere to the basic principles followed by most professional
investors: allocate among asset classes, diversify within each asset class, and
rebalance one's portfolio on a routine schedule. I elaborated on this "ADR"
theme in fund reports over the last few months of 2004. For more information on
how to apply a Disciplined Diversification(SM) strategy to your portfolio using
the principles of ADR, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Web site, MFS.COM.
As always, we appreciate your confidence in MFS, and you can be sure of our
continued commitment to do the best we can to help you pursue your long-term
financial goals.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
April 15, 2005
It is not possible to invest directly in an index.
Lipper rankings and performance are based on historical average annual returns
of Class A shares, and do not include any sales charges. Past performance is no
guarantee of future results.
Asset allocation and diversification cannot guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
(1) Source: DALBAR July 2003 update to its Quantitative Analysis of Investment
Behavior; DALBAR, Inc., is a financial-services market research firm
headquartered in Boston, MA.
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
PORTFOLIO STRUCTURE
Stocks 99.5%
Cash & Other Net Assets 0.5%
TOP TEN HOLDINGS
Silicon Laboratories, Inc. 2.9%
-------------------------------------------
DSP Group, Inc. 1.7%
-------------------------------------------
Ariba, Inc. 1.6%
-------------------------------------------
Gen-Probe, Inc. 1.5%
-------------------------------------------
Medicis Pharmaceutical Corp. 1.4%
-------------------------------------------
Aspect Medical Systems, Inc. 1.4%
-------------------------------------------
MicroStrategy, Inc. 1.4%
-------------------------------------------
Cytyc Corp. 1.4%
-------------------------------------------
Cognex Corp. 1.3%
-------------------------------------------
MSC Industrial Direct Co., Inc. 1.3%
-------------------------------------------
SECTOR WEIGHTINGS
Health Care 22.2%
-------------------------------------------
Technology 22.1%
-------------------------------------------
Special Products & Services 12.4%
-------------------------------------------
Financial Services 8.5%
-------------------------------------------
Leisure 8.4%
-------------------------------------------
Industrial Goods & Services 7.0%
-------------------------------------------
Retailing 6.2%
-------------------------------------------
Energy 4.4%
-------------------------------------------
Autos & Housing 2.4%
-------------------------------------------
Basic Materials 2.0%
-------------------------------------------
Transportation 1.8%
-------------------------------------------
Utilities & Communications 1.3%
-------------------------------------------
Consumer Staples 0.8%
-------------------------------------------
Percentages are based on net assets as of 2/28/05.
The portfolio is actively managed, and current holdings may be different.
- ------------------------------------------------------------------------------
MANAGEMENT REVIEW
- ------------------------------------------------------------------------------
SUMMARY OF RESULTS
For the six months ended February 28, 2005, Class A shares of the MFS New
Discovery Fund provided a total return of 15.59%, not including sales charges.
In comparison, the fund's benchmark, the Russell 2000 Growth Index, returned
17.56%. The fund's investment objective is capital appreciation. The fund
invests, under normal market conditions, at least 65% of its net assets in
equity securities of emerging growth companies.
MARKET ENVIRONMENT
Over the period, many measures of global economic growth, including employment
and corporate spending, continued to improve, although we feel that high oil
prices, rising short-term interest rates in the United States, a significant
decline in the value of the U.S. dollar against most major currencies, and
geopolitical uncertainty impacted markets. But, oil prices pulled back from
their record levels toward the end of 2004 and, in our view, investors seemed
to turn their attention to strong corporate profits and economic growth.
DETRACTORS FROM PERFORMANCE
Stock selection in the special products and services sector held back relative
performance. Moving and relocation services company SIRVA Inc. and market
research firm Harris Interactive were among the fund's top detractors for the
period. Our underweighted position in the energy sector and our decision not to
hold strong-performing Cheniere Energy, which is in the index, also dampened
relative investment results.
Stock selection in the basic materials sector hurt relative returns, although
no individual stocks within the sector were among the fund's top detractors.
Stocks in other sectors that held back performance included technology
companies Ariba and Zarlink Semiconductor*.
Although the health care sector was the portfolio's top contributor to relative
performance overall, several of our health care holdings hurt results during
the period. These holdings included Medicis Pharmaceutical, Omnicell, which
provides inventory management systems for hospitals, and medical testing
company Cytyc Corp.
The fund's cash position also detracted from relative returns. As with all
mutual funds, this portfolio holds cash to buy new holdings and provide
liquidity. In a period when equity markets rose, holding any cash hurt
performance against our benchmark, the Russell 2000 Growth Index, which has no
cash position.
CONTRIBUTORS TO PERFORMANCE
In the health care sector, strong stock selection provided the greatest
contribution to the portfolio's overall relative performance. Our positions in
diagnostic testing firm Gen-Probe, which is not in the index, drug company CV
Therapeutics, automated diagnostic equipment maker Ventana Medical Systems, and
Aspect Medical Systems were among the fund's top contributors.
Stock selection within the utilities and communications sector and our
underweighted position in the financial services sector also boosted relative
results, although no individual stocks within either sector were among the
fund's top contributors for the period.
Stocks in other sectors that helped relative performance included technology
companies MicroStrategy Inc., Digital River*, and Business Objects, which is
not in the index, and several leisure companies, including WMS Industries,
which makes lottery terminals and slot machines, and video game makers THQ and
Activision.
Respectfully,
/s/ Camille H. Lee /s/ Thomas H. Wetherald
Camille H. Lee Thomas H. Wetherald
Portfolio Manager Portfolio Manager
* Security was not held in the portfolio at period-end.
The views expressed in this report are those of the portfolio managers 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.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/28/05
- --------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including the reinvestment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR I SHARES CALL 1-888-808-6374.) 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. HIGH
SHORT-TERM RETURNS FOR ANY PERIOD MAY BE AND LIKELY WERE ATTRIBUTABLE TO
FAVORABLE MARKET CONDITIONS DURING THAT PERIOD, WHICH MAY NOT BE REPEATABLE.
THE PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/97 15.59% -2.80% 0.06% -6.12% 10.65%
- ------------------------------------------------------------------------------
B 11/03/97 15.20% -3.46% -0.59% -6.73% 10.01%
- ------------------------------------------------------------------------------
C 11/03/97 15.27% -3.45% -0.61% -6.73% 10.03%
- ------------------------------------------------------------------------------
I 1/02/97 15.81% -2.43% 0.42% -5.78% 11.04%
- ------------------------------------------------------------------------------
R1** 12/31/02 15.48% -2.99% -0.04% -6.18% 10.61%
- ------------------------------------------------------------------------------
R2** 10/31/03 15.44% -3.24% -0.11% -6.22% 10.58%
- ------------------------------------------------------------------------------
529A 7/31/02 15.44% -3.05% -0.13% -6.23% 10.57%
- ------------------------------------------------------------------------------
529B 7/31/02 15.13% -3.66% -0.67% -6.53% 10.35%
- ------------------------------------------------------------------------------
529C 7/31/02 15.12% -3.66% -0.71% -6.55% 10.33%
- ------------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
Average small-cap
growth fund+ 18.20% 4.32% 6.76% -5.52% 6.97%
- ------------------------------------------------------------------------------
Russell 2000 Growth Index# 17.56% 5.30% 8.32% -7.95% 3.46%
- ------------------------------------------------------------------------------
- --------------------
Average annual
with sales charge
- --------------------
Share class
- ------------------------------------------------------------------------------
A 8.95% -8.39% -1.89% -7.22% 9.85%
- ------------------------------------------------------------------------------
B 11.20% -7.32% -1.59% -7.04% 10.01%
- ------------------------------------------------------------------------------
C 14.27% -4.42% -0.61% -6.73% 10.03%
- ------------------------------------------------------------------------------
529A 8.80% -8.63% -2.08% -7.33% 9.77%
- ------------------------------------------------------------------------------
529B 11.13% -7.52% -1.66% -6.84% 10.35%
- ------------------------------------------------------------------------------
529C 14.12% -4.62% -0.71% -6.55% 10.33%
- ------------------------------------------------------------------------------
I, RI and R2 Class shares do not have a sales charge. Please see Notes to
Performance Summary
for details.
- --------------------
Cumulative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 15.59% -2.80% 0.19% -27.07% 128.26%
- ------------------------------------------------------------------------------
B 15.20% -3.46% -1.76% -29.40% 117.73%
- ------------------------------------------------------------------------------
C 15.27% -3.45% -1.82% -29.43% 117.98%
- ------------------------------------------------------------------------------
I 15.81% -2.43% 1.26% -25.77% 134.86%
- ------------------------------------------------------------------------------
R1** 15.48% -2.99% -0.13% -27.31% 127.53%
- ------------------------------------------------------------------------------
R2** 15.44% -3.24% -0.32% -27.45% 127.10%
- ------------------------------------------------------------------------------
529A 15.44% -3.05% -0.38% -27.49% 126.95%
- ------------------------------------------------------------------------------
529B 15.13% -3.66% -2.00% -28.67% 123.26%
- ------------------------------------------------------------------------------
529C 15.12% -3.66% -2.11% -28.75% 123.03%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
January 2, 1997, through February 28, 2005. Index information is from
January 2, 1997.
** Effective April 1, 2005, Class R1 shares have been renamed "Class R
shares", and Class R2 shares have been renamed "Class R3 shares". In
addition, on April 1, 2005, the fund launched the following new R Classes:
R1, R2, R4, and R5. All references herein to Class R1 and Class R2 shares
are as of February 28, 2005 and do not reflect the renaming of Class R1 and
Class R2 shares.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
Periods less than one year are actual, not annualized.
INDEX DEFINITION
Russell 2000 Growth Index - is constructed to provide a comprehensive barometer
for growth securities in the small-cap segment of the U.S. equity universe.
Companies in this index have higher price-to-book ratios and higher forecasted
growth values.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results including sales charge reflect the deduction of the
maximum 5.75% sales charge. Class B and 529B results including sales charge
reflect the deduction of the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C and 529C results
including sales charge (assuming redemption within one year from the end of the
prior month of purchase) reflect the deduction of the 1% CDSC. Class I shares
have no sales charges and are available only to certain investors. Class R1 and
R2 shares have no sales charges and are available only to certain retirement
plans. Class 529A, 529B, 529C shares are only available in conjunction with
qualified tuition programs, such as the MFS 529 Savings Plan. 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.
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 share class to which it is blended, and
lower performance for share classes with lower operating expenses than the
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.
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. The
proceeds were paid to the fund on February 16, 2005.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
The portfolio may be susceptible to market risk, which is the risk that the
price of a security held by the fund will fall due to changing economic,
political or market conditions or disappointing earnings results.
Prices of securities held in the portfolio react to the economic condition of
the company that issued the security. The portfolio's investments in an issuer
may rise and fall based on the issuer's actual and anticipated earnings,
changes in management and the potential for takeovers and acquisitions.
Companies may be less likely to pay dividends in difficult economic
environments.
Investments in emerging growth companies may be subject to more abrupt or
erratic market movements and may involve greater risks than investments in
other companies. Emerging growth companies often have limited product lines,
markets and financial resources, are dependent on management by one or a few
key individuals, have shares which suffer steeper than average price declines
after disappointing earnings reports, and are more difficult to sell at
satisfactory prices.
Investments in small cap companies tend to involve more risk and be more
volatile than investments in larger companies. Small cap companies may be more
susceptible to market declines because of their limited product lines,
financial and management resources, markets and distribution channels. Their
shares may be more difficult to sell at satisfactory prices during market
declines.
Over-the-counter (OTC) transactions involve risks in addition to those
associated with transactions in securities traded on exchanges. OTC listed
companies may have limited product lines, markets or financial resources. Many
OTC stocks trade less frequently and in smaller volume than exchange listed
stocks. The values of these stocks may be more volatile than exchange listed
stocks, and the fund may experience difficulty in purchasing or selling these
securities at a fair price.
Investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject.
The portfolio will suffer a loss if it establishes a short position and the
value of the underlying security or index rises rather than falls. Because the
fund must cover its short position subject to prevailing market rates, the
potential loss is unlimited.
The portfolio has engaged and may engage in active and frequent trading to
achieve its principal investment strategies. This may result in the realization
and distribution to shareholders of higher capital gains as compared to a fund
with less active trading policies, which would increase your tax liability
unless you hold your shares through a tax-deferred or exempt vehicle (such as
an Individual Retirement Account (IRA)). Frequent trading also increases
transaction costs, which could detract from the portolio's performance.
Please see the prospectus for further information regarding these and other
risk considerations.
- -------------------------------------------------------------------------------
EXPENSE TABLE
- -------------------------------------------------------------------------------
FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM SEPTEMBER 1, 2004,
THROUGH FEBRUARY 28, 2005.
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, September 1, 2004 through February
28, 2005.
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 9/01/04 2/28/05 9/01/04-2/28/05
- -------------------------------------------------------------------------------
Actual 1.48% $1,000 $1,156 $7.91
A -------------------------------------------------------------------------
Hypothetical* 1.48% $1,000 $1,017 $ 7.40
- -------------------------------------------------------------------------------
Actual 2.13% $1,000 $1,152 $11.37
B -------------------------------------------------------------------------
Hypothetical* 2.13% $1,000 $1,014 $10.64
- -------------------------------------------------------------------------------
Actual 2.13% $1,000 $1,153 $11.37
C -------------------------------------------------------------------------
Hypothetical* 2.13% $1,000 $1,014 $10.64
- -------------------------------------------------------------------------------
Actual 1.13% $1,000 $1,158 $ 6.05
I -------------------------------------------------------------------------
Hypothetical* 1.13% $1,000 $1,019 $ 5.66
- -------------------------------------------------------------------------------
Actual 1.64% $1,000 $1,155 $ 8.76
R1 -------------------------------------------------------------------------
Hypothetical* 1.64% $1,000 $1,017 $ 8.20
- -------------------------------------------------------------------------------
Actual 1.90% $1,000 $1,154 $10.15
R2 -------------------------------------------------------------------------
Hypothetical* 1.90% $1,000 $1,015 $ 9.49
- -------------------------------------------------------------------------------
Actual 1.76% $1,000 $1,154 $ 9.40
529A -------------------------------------------------------------------------
Hypothetical* 1.76% $1,000 $1,016 $ 8.80
- -------------------------------------------------------------------------------
Actual 2.38% $1,000 $1,151 $12.69
529B -------------------------------------------------------------------------
Hypothetical* 2.38% $1,000 $1,013 $11.88
- -------------------------------------------------------------------------------
Actual 2.38% $1,000 $1,151 $12.69
529C -------------------------------------------------------------------------
Hypothetical* 2.38% $1,000 $1,013 $11.88
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** 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 (unaudited) - 2/28/05
- -------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Stocks - 99.5%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------
Aerospace - 0.9%
- -------------------------------------------------------------------------------------------------
Esterline Technologies Corp.^* 48,830 $1,605,530
- -------------------------------------------------------------------------------------------------
Hexcel Corp.^* 121,120 2,014,226
- -------------------------------------------------------------------------------------------------
KVH Industries, Inc.^* 461,310 4,682,296
- -------------------------------------------------------------------------------------------------
Teledyne Technologies, Inc.* 55,580 1,699,636
- -------------------------------------------------------------------------------------------------
$10,001,688
- -------------------------------------------------------------------------------------------------
Airlines - 0.3%
- -------------------------------------------------------------------------------------------------
easyJet Airline Co. Ltd.* 775,800 $3,467,141
- -------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.2%
- -------------------------------------------------------------------------------------------------
Carter's, Inc.^* 75,630 $3,010,074
- -------------------------------------------------------------------------------------------------
Reebok International Ltd. 106,020 4,681,843
- -------------------------------------------------------------------------------------------------
Timberland Co., "A"* 82,700 5,759,228
- -------------------------------------------------------------------------------------------------
$13,451,145
- -------------------------------------------------------------------------------------------------
Automotive - 0.6%
- -------------------------------------------------------------------------------------------------
CLARCOR, Inc. 116,350 $6,430,664
- -------------------------------------------------------------------------------------------------
Banks & Credit Companies - 7.2%
- -------------------------------------------------------------------------------------------------
Advance America, Cash Advance Centers, Inc.^ 69,080 $1,404,396
- -------------------------------------------------------------------------------------------------
Alabama National BanCorp.^ 13,989 872,214
- -------------------------------------------------------------------------------------------------
BankUnited Financial Corp., "A"* 169,040 4,783,832
- -------------------------------------------------------------------------------------------------
Cathay General Bancorp, Inc. 112,940 4,070,358
- -------------------------------------------------------------------------------------------------
Collegiate Funding Services, Inc.^* 211,068 3,491,065
- -------------------------------------------------------------------------------------------------
East West Bancorp, Inc.^ 109,890 3,951,644
- -------------------------------------------------------------------------------------------------
First BanCorp Puerto Rico 12,200 574,132
- -------------------------------------------------------------------------------------------------
Glacier Bancorp, Inc. 54,110 1,713,123
- -------------------------------------------------------------------------------------------------
Hanmi Financial Corp.^ 328,300 5,807,627
- -------------------------------------------------------------------------------------------------
Harbor Florida Bancshares, Inc.^ 116,560 3,956,046
- -------------------------------------------------------------------------------------------------
Investors Financial Services Corp.^ 103,920 5,208,470
- -------------------------------------------------------------------------------------------------
MetroCorp Bancshares, Inc. 71,885 1,703,674
- -------------------------------------------------------------------------------------------------
Nara Bancorp, Inc.^ 80,610 1,573,507
- -------------------------------------------------------------------------------------------------
NewAlliance Bancshares, Inc. 589,500 8,429,850
- -------------------------------------------------------------------------------------------------
Partners Trust Financial Group, Inc. 368,397 4,103,943
- -------------------------------------------------------------------------------------------------
Preferred Bank 910 35,900
- -------------------------------------------------------------------------------------------------
Provident Financial Services, Inc. 97,600 1,739,232
- -------------------------------------------------------------------------------------------------
QC Holdings, Inc.^* 113,150 1,990,309
- -------------------------------------------------------------------------------------------------
Southwest Bancorp, Inc.^ 418,840 7,978,902
- -------------------------------------------------------------------------------------------------
Sterling Bancshares, Inc.^ 394,300 5,752,837
- -------------------------------------------------------------------------------------------------
UCBH Holdings, Inc.^ 123,780 5,123,254
- -------------------------------------------------------------------------------------------------
W Holding Co., Inc.^ 230,322 2,655,613
- -------------------------------------------------------------------------------------------------
Wintrust Financial Corp.^ 54,410 2,919,641
- -------------------------------------------------------------------------------------------------
$79,839,569
- -------------------------------------------------------------------------------------------------
Biotechnology - 5.9%
- -------------------------------------------------------------------------------------------------
Affymetrix, Inc.^* 133,620 $5,709,583
- -------------------------------------------------------------------------------------------------
CV Therapeutics, Inc.^* 118,970 2,609,012
- -------------------------------------------------------------------------------------------------
Cypress Bioscience, Inc.^* 297,720 3,554,777
- -------------------------------------------------------------------------------------------------
Encysive Pharmaceuticals, Inc.* 652,260 7,187,905
- -------------------------------------------------------------------------------------------------
Gen-Probe, Inc.^* 334,250 17,016,667
- -------------------------------------------------------------------------------------------------
Incyte Corp.^* 164,060 1,432,244
- -------------------------------------------------------------------------------------------------
Keryx Biopharmaceuticals, Inc.^* 270,590 3,517,670
- -------------------------------------------------------------------------------------------------
MannKind Corp.^* 232,800 3,145,128
- -------------------------------------------------------------------------------------------------
Neurochem, Inc.^* 277,600 4,164,000
- -------------------------------------------------------------------------------------------------
Neurocrine Biosciences, Inc.^* 122,730 4,912,882
- -------------------------------------------------------------------------------------------------
Vasogen, Inc.^* 1,075,750 4,668,755
- -------------------------------------------------------------------------------------------------
Vicuron Pharmaceuticals, Inc.^* 412,640 7,159,304
- -------------------------------------------------------------------------------------------------
$65,077,927
- -------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.1%
- -------------------------------------------------------------------------------------------------
ADVO, Inc.^ 144,600 $5,302,482
- -------------------------------------------------------------------------------------------------
Gemstar-TV Guide International, Inc.^* 1,531,860 6,832,096
- -------------------------------------------------------------------------------------------------
R.H. Donnelley Corp.* 205,522 12,536,842
- -------------------------------------------------------------------------------------------------
Radio One, Inc., "A"* 526,470 7,233,698
- -------------------------------------------------------------------------------------------------
Saga Communications, Inc., "A"^* 139,880 2,242,276
- -------------------------------------------------------------------------------------------------
$34,147,394
- -------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 0.4%
- -------------------------------------------------------------------------------------------------
MarketAxess Holdings, Inc.^* 338,830 $4,015,135
- -------------------------------------------------------------------------------------------------
Business Services - 9.1%
- -------------------------------------------------------------------------------------------------
Alliance Data Systems Corp.^* 152,040 $5,997,978
- -------------------------------------------------------------------------------------------------
BlueLinx Holdings, Inc.* 413,920 6,370,229
- -------------------------------------------------------------------------------------------------
Bright Horizons Family Solutions, Inc.^* 111,630 7,689,074
- -------------------------------------------------------------------------------------------------
Concur Technologies, Inc.* 321,700 2,718,365
- -------------------------------------------------------------------------------------------------
Corporate Executive Board Co. 109,900 6,874,245
- -------------------------------------------------------------------------------------------------
CoStar Group, Inc.^* 206,960 7,622,337
- -------------------------------------------------------------------------------------------------
Getty Images, Inc.^* 73,890 5,271,313
- -------------------------------------------------------------------------------------------------
Harris Interactive, Inc.^* 1,691,770 8,458,850
- -------------------------------------------------------------------------------------------------
Labor Ready, Inc.^* 162,570 3,053,065
- -------------------------------------------------------------------------------------------------
SIRVA, Inc.^* 981,120 8,624,045
- -------------------------------------------------------------------------------------------------
Stamps.com, Inc.^ 178,100 3,253,709
- -------------------------------------------------------------------------------------------------
UAP Holding Corp.^* 215,800 3,362,164
- -------------------------------------------------------------------------------------------------
Ultimate Software Group, Inc.^* 646,900 8,707,274
- -------------------------------------------------------------------------------------------------
Universal Technical Institute, Inc.^* 378,980 13,503,057
- -------------------------------------------------------------------------------------------------
WESCO International, Inc.* 89,200 3,204,956
- -------------------------------------------------------------------------------------------------
Wright Express Corp.* 333,120 5,959,517
- -------------------------------------------------------------------------------------------------
$100,670,178
- -------------------------------------------------------------------------------------------------
Computer Software - 6.2%
- -------------------------------------------------------------------------------------------------
Altiris, Inc.^* 91,100 $2,662,853
- -------------------------------------------------------------------------------------------------
ANSYS, Inc.* 87,770 3,156,209
- -------------------------------------------------------------------------------------------------
Business Objects S.A., ADR^* 444,780 12,436,049
- -------------------------------------------------------------------------------------------------
FileNet Corp.^* 261,060 6,114,025
- -------------------------------------------------------------------------------------------------
Kronos, Inc.^* 30,990 1,730,482
- -------------------------------------------------------------------------------------------------
Macromedia, Inc.^* 268,180 9,088,620
- -------------------------------------------------------------------------------------------------
MicroStrategy, Inc., "A"^* 220,860 15,619,219
- -------------------------------------------------------------------------------------------------
NAVTEQ Corp.^* 134,900 5,895,130
- -------------------------------------------------------------------------------------------------
Open Solutions, Inc.* 211,980 4,324,392
- -------------------------------------------------------------------------------------------------
Opsware, Inc.^* 705,100 3,913,305
- -------------------------------------------------------------------------------------------------
Retalix Ltd.^* 162,833 3,766,327
- -------------------------------------------------------------------------------------------------
$68,706,611
- -------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.0%
- -------------------------------------------------------------------------------------------------
National Instruments Corp.^ 396,430 $11,322,041
- -------------------------------------------------------------------------------------------------
Construction - 1.3%
- -------------------------------------------------------------------------------------------------
Eagle Materials, Inc.^ 145,420 $12,146,933
- -------------------------------------------------------------------------------------------------
Simpson Manufacturing, Inc.^ 60,980 2,105,639
- -------------------------------------------------------------------------------------------------
$14,252,572
- -------------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.2%
- -------------------------------------------------------------------------------------------------
Ace Cash Express, Inc.^* 101,900 $2,578,070
- -------------------------------------------------------------------------------------------------
Career Education Corp.* 138,510 4,730,116
- -------------------------------------------------------------------------------------------------
Corinthian Colleges, Inc.^* 264,437 4,572,116
- -------------------------------------------------------------------------------------------------
First Marblehead Corp.^* 46,060 3,203,473
- -------------------------------------------------------------------------------------------------
PlanetOut, Inc.^* 229,870 2,264,219
- -------------------------------------------------------------------------------------------------
Strayer Education, Inc.^ 115,090 12,173,069
- -------------------------------------------------------------------------------------------------
Yankee Candle Co., Inc.^ 197,200 6,105,312
- -------------------------------------------------------------------------------------------------
$35,626,375
- -------------------------------------------------------------------------------------------------
Electrical Equipment - 3.5%
- -------------------------------------------------------------------------------------------------
A.O. Smith Corp.^ 143,900 $3,781,692
- -------------------------------------------------------------------------------------------------
Blount International, Inc.* 161,200 2,761,356
- -------------------------------------------------------------------------------------------------
CUNO, Inc.* 62,460 3,510,252
- -------------------------------------------------------------------------------------------------
Littelfuse, Inc.^* 430,680 14,005,714
- -------------------------------------------------------------------------------------------------
MSC Industrial Direct Co., Inc., "A" 438,640 14,190,004
- -------------------------------------------------------------------------------------------------
$38,249,018
- -------------------------------------------------------------------------------------------------
Electronics - 11.4%
- -------------------------------------------------------------------------------------------------
American Superconductor Corp.^* 663,490 $7,086,073
- -------------------------------------------------------------------------------------------------
Amphenol Corp., "A" 125,360 5,001,864
- -------------------------------------------------------------------------------------------------
Applied Films Corp.^* 417,700 9,377,365
- -------------------------------------------------------------------------------------------------
ATMI, Inc.^* 224,120 6,100,546
- -------------------------------------------------------------------------------------------------
Dolby Laboratories, Inc.* 119,180 2,750,674
- -------------------------------------------------------------------------------------------------
DSP Group, Inc.* 726,674 18,294,018
- -------------------------------------------------------------------------------------------------
FormFactor, Inc.* 108,600 2,494,542
- -------------------------------------------------------------------------------------------------
Integrated Circuit Systems, Inc.^* 627,900 12,671,022
- -------------------------------------------------------------------------------------------------
OmniVision Technologies, Inc.^* 278,870 5,635,963
- -------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.^* 130,790 3,040,867
- -------------------------------------------------------------------------------------------------
PMC-Sierra, Inc.^* 1,077,350 10,719,632
- -------------------------------------------------------------------------------------------------
PowerDsine Ltd.* 495,070 4,911,094
- -------------------------------------------------------------------------------------------------
Silicon Laboratories, Inc.^* 916,650 32,174,415
- -------------------------------------------------------------------------------------------------
Volterra Semiconductor Corp.* 397,500 5,843,250
- -------------------------------------------------------------------------------------------------
$126,101,325
- -------------------------------------------------------------------------------------------------
Energy - Independent - 1.4%
- -------------------------------------------------------------------------------------------------
Edge Petroleum Corp.^* 34,320 $589,274
- -------------------------------------------------------------------------------------------------
Gasco Energy, Inc.^* 467,100 1,751,625
- -------------------------------------------------------------------------------------------------
Houston Exploration Co.* 52,020 3,011,958
- -------------------------------------------------------------------------------------------------
Noble Energy, Inc. 45,700 3,091,148
- -------------------------------------------------------------------------------------------------
Stone Energy Corp.^* 64,440 3,236,821
- -------------------------------------------------------------------------------------------------
Unit Corp.* 53,960 2,470,289
- -------------------------------------------------------------------------------------------------
W&T Offshore, Inc.^ 79,500 1,582,050
- -------------------------------------------------------------------------------------------------
$15,733,165
- -------------------------------------------------------------------------------------------------
Engineering - Construction - 0.5%
- -------------------------------------------------------------------------------------------------
InfraSource Services, Inc.^* 488,790 $6,007,229
- -------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.4%
- -------------------------------------------------------------------------------------------------
Wild Oats Markets, Inc.^* 666,290 $4,297,571
- -------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.3%
- -------------------------------------------------------------------------------------------------
CoolBrands International, Inc.* 468,100 $3,385,456
- -------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.2%
- -------------------------------------------------------------------------------------------------
Bowater, Inc.^ 64,900 $2,520,067
- -------------------------------------------------------------------------------------------------
Furniture & Appliances - 0.5%
- -------------------------------------------------------------------------------------------------
Tempur-Pedic International, Inc.^* 309,200 $5,921,180
- -------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.1%
- -------------------------------------------------------------------------------------------------
WMS Industries, Inc.^* 398,590 $11,953,714
- -------------------------------------------------------------------------------------------------
General Merchandise - 0.5%
- -------------------------------------------------------------------------------------------------
99 Cents Only Stores^* 342,780 $5,343,940
- -------------------------------------------------------------------------------------------------
Insurance - 0.4%
- -------------------------------------------------------------------------------------------------
Endurance Specialty Holdings Ltd. 118,300 $4,229,225
- -------------------------------------------------------------------------------------------------
Internet - 1.6%
- -------------------------------------------------------------------------------------------------
Ariba, Inc.^* 1,895,580 $17,268,734
- -------------------------------------------------------------------------------------------------
Ninetowns Digital World Trade Holdings Ltd., ADR* 51,800 449,106
- -------------------------------------------------------------------------------------------------
$17,717,840
- -------------------------------------------------------------------------------------------------
Leisure & Toys - 3.1%
- -------------------------------------------------------------------------------------------------
Activision, Inc.^* 614,400 $13,430,784
- -------------------------------------------------------------------------------------------------
Take-Two Interactive Software, Inc.^* 175,000 6,417,250
- -------------------------------------------------------------------------------------------------
THQ, Inc.^* 517,830 14,157,472
- -------------------------------------------------------------------------------------------------
$34,005,506
- -------------------------------------------------------------------------------------------------
Machinery & Tools - 2.1%
- -------------------------------------------------------------------------------------------------
Actuant Corp., "A"* 18,700 $1,010,735
- -------------------------------------------------------------------------------------------------
Bucyrus International, Inc. 71,970 3,125,657
- -------------------------------------------------------------------------------------------------
Cognex Corp. 525,840 14,565,768
- -------------------------------------------------------------------------------------------------
RTI International Metals, Inc.* 162,000 4,390,200
- -------------------------------------------------------------------------------------------------
$23,092,360
- -------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.9%
- -------------------------------------------------------------------------------------------------
Allscripts Healthcare Solutions^* 35,200 $471,680
- -------------------------------------------------------------------------------------------------
Cerner Corp.^* 33,900 1,766,190
- -------------------------------------------------------------------------------------------------
Omnicell, Inc.^* 619,166 4,024,579
- -------------------------------------------------------------------------------------------------
TriZetto Group, Inc.^* 438,600 3,899,154
- -------------------------------------------------------------------------------------------------
$10,161,603
- -------------------------------------------------------------------------------------------------
Medical Equipment - 12.4%
- -------------------------------------------------------------------------------------------------
Align Technology, Inc.^* 611,160 $4,626,481
- -------------------------------------------------------------------------------------------------
Aspect Medical Systems, Inc.^* 726,690 15,681,970
- -------------------------------------------------------------------------------------------------
Conceptus, Inc.^* 997,100 7,837,206
- -------------------------------------------------------------------------------------------------
Cyberonics, Inc.^* 169,300 6,347,057
- -------------------------------------------------------------------------------------------------
Cytyc Corp.* 669,805 15,271,554
- -------------------------------------------------------------------------------------------------
DJ Orthopedics, Inc.^* 225,770 5,443,315
- -------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.^* 93,480 5,669,562
- -------------------------------------------------------------------------------------------------
FoxHollow Technologies, Inc.^* 219,060 6,035,103
- -------------------------------------------------------------------------------------------------
Hogy Medical Co. Ltd.^ 126,000 6,127,220
- -------------------------------------------------------------------------------------------------
IDEXX Laboratories, Inc.^* 220,655 12,235,320
- -------------------------------------------------------------------------------------------------
Inamed Corp.^* 97,100 6,620,278
- -------------------------------------------------------------------------------------------------
Mentor Corp.^ 98,640 3,414,917
- -------------------------------------------------------------------------------------------------
Millipore Corp.* 196,570 8,896,758
- -------------------------------------------------------------------------------------------------
Penwest Pharmaceuticals Co.^* 215,470 2,370,170
- -------------------------------------------------------------------------------------------------
Sybron Dental Specialties, Inc.^* 79,900 2,854,028
- -------------------------------------------------------------------------------------------------
Thoratec Corp.^* 869,330 10,214,628
- -------------------------------------------------------------------------------------------------
Ventana Medical Systems, Inc.^* 210,050 14,121,662
- -------------------------------------------------------------------------------------------------
VNUS Medical Technologies, Inc.^* 220,650 2,647,800
- -------------------------------------------------------------------------------------------------
$136,415,029
- -------------------------------------------------------------------------------------------------
Metals & Mining - 1.2%
- -------------------------------------------------------------------------------------------------
Aber Diamond Corp. 257,050 $8,672,867
- -------------------------------------------------------------------------------------------------
Inmet Mining Corp.* 282,500 4,368,002
- -------------------------------------------------------------------------------------------------
$13,040,869
- -------------------------------------------------------------------------------------------------
Oil Services - 3.0%
- -------------------------------------------------------------------------------------------------
Atwood Oceanics, Inc.* 44,280 $3,044,250
- -------------------------------------------------------------------------------------------------
Cal Dive International, Inc.^* 128,290 6,514,566
- -------------------------------------------------------------------------------------------------
Grey Wolf, Inc.^* 649,870 4,217,656
- -------------------------------------------------------------------------------------------------
Lone Star Technologies, Inc.* 72,340 3,277,725
- -------------------------------------------------------------------------------------------------
Maverick Tube Corp.^* 101,130 3,596,183
- -------------------------------------------------------------------------------------------------
Oil States International, Inc.* 145,900 3,069,736
- -------------------------------------------------------------------------------------------------
Superior Energy Services, Inc.^* 184,620 3,541,012
- -------------------------------------------------------------------------------------------------
TETRA Technologies, Inc.^* 101,600 3,181,096
- -------------------------------------------------------------------------------------------------
Trican Well Service Ltd.* 42,800 2,794,918
- -------------------------------------------------------------------------------------------------
$33,237,142
- -------------------------------------------------------------------------------------------------
Pharmaceuticals - 3.0%
- -------------------------------------------------------------------------------------------------
Auxilium Pharmaceuticals, Inc.* 595,752 $3,532,809
- -------------------------------------------------------------------------------------------------
Endo Pharmaceuticals Holdings, Inc.^* 328,600 7,403,358
- -------------------------------------------------------------------------------------------------
Inspire Pharmaceuticals, Inc.^* 348,110 2,770,956
- -------------------------------------------------------------------------------------------------
Medicis Pharmaceutical Corp., "A"^ 461,680 15,946,427
- -------------------------------------------------------------------------------------------------
PRA International^* 136,070 3,337,797
- -------------------------------------------------------------------------------------------------
$32,991,347
- -------------------------------------------------------------------------------------------------
Printing & Publishing - 0.3%
- -------------------------------------------------------------------------------------------------
Playboy Enterprises, Inc., "B"* 216,390 $3,007,821
- -------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.2%
- -------------------------------------------------------------------------------------------------
Tidewater, Inc.^ 55,720 $2,299,564
- -------------------------------------------------------------------------------------------------
Real Estate - 0.5%
- -------------------------------------------------------------------------------------------------
CB Richard Ellis Group, Inc.* 91,270 $3,293,022
- -------------------------------------------------------------------------------------------------
Saxon Capital, Inc.^ 130,530 2,344,319
- -------------------------------------------------------------------------------------------------
$5,637,341
- -------------------------------------------------------------------------------------------------
Restaurants - 0.8%
- -------------------------------------------------------------------------------------------------
P.F. Chang's China Bistro, Inc.^* 111,360 $6,103,642
- -------------------------------------------------------------------------------------------------
Rare Hospitality International, Inc.^* 102,350 2,994,761
- -------------------------------------------------------------------------------------------------
$9,098,403
- -------------------------------------------------------------------------------------------------
Special Products & Services - 0.6%
- -------------------------------------------------------------------------------------------------
Headwaters, Inc.^* 215,890 $6,943,022
- -------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.6%
- -------------------------------------------------------------------------------------------------
Airgas, Inc.^ 137,660 $3,455,266
- -------------------------------------------------------------------------------------------------
Cytec Industries, Inc. 47,080 2,378,952
- -------------------------------------------------------------------------------------------------
Georgia Gulf Corp.^ 12,470 658,541
- -------------------------------------------------------------------------------------------------
$6,492,759
- -------------------------------------------------------------------------------------------------
Specialty Stores - 4.1%
- -------------------------------------------------------------------------------------------------
A.C. Moore Arts & Crafts, Inc.^* 229,960 $5,868,349
- -------------------------------------------------------------------------------------------------
Audible, Inc.^* 369,030 5,409,980
- -------------------------------------------------------------------------------------------------
Celebrate Express, Inc.* 85,320 1,621,080
- -------------------------------------------------------------------------------------------------
Coldwater Creek, Inc.^* 53,960 1,495,232
- -------------------------------------------------------------------------------------------------
Finish Line, Inc., "A"^ 67,780 1,386,779
- -------------------------------------------------------------------------------------------------
GameStop Corp.^* 164,600 3,194,886
- -------------------------------------------------------------------------------------------------
Grupo Elektra S.A. de C.V. 328,300 2,837,817
- -------------------------------------------------------------------------------------------------
Regis Corp. 194,230 7,652,662
- -------------------------------------------------------------------------------------------------
Restoration Hardware, Inc.^* 258,100 1,370,511
- -------------------------------------------------------------------------------------------------
Tuesday Morning Corp.^* 299,950 9,403,433
- -------------------------------------------------------------------------------------------------
West Marine, Inc.^* 185,520 4,485,874
- -------------------------------------------------------------------------------------------------
$44,726,603
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.9%
- -------------------------------------------------------------------------------------------------
ADC Telecommunications, Inc.^* 1,886,600 $4,339,180
- -------------------------------------------------------------------------------------------------
AudioCodes Ltd.^* 587,020 7,461,024
- -------------------------------------------------------------------------------------------------
Blue Coat Systems, Inc.* 217,140 4,043,147
- -------------------------------------------------------------------------------------------------
Harmonic, Inc.^* 211,600 2,317,020
- -------------------------------------------------------------------------------------------------
ViaSat, Inc.^* 147,800 2,938,264
- -------------------------------------------------------------------------------------------------
$21,098,635
- -------------------------------------------------------------------------------------------------
Telephone Services - 1.3%
- -------------------------------------------------------------------------------------------------
Arbinet-thexchange, Inc.* 28,080 $685,152
- -------------------------------------------------------------------------------------------------
SpectraSite, Inc.* 162,390 10,035,702
- -------------------------------------------------------------------------------------------------
Syniverse Holdings, Inc.^* 212,580 3,241,845
- -------------------------------------------------------------------------------------------------
$13,962,699
- -------------------------------------------------------------------------------------------------
Trucking - 1.3%
- -------------------------------------------------------------------------------------------------
CNF, Inc. 134,200 $6,155,754
- -------------------------------------------------------------------------------------------------
Landstar Systems, Inc.^* 158,320 5,553,866
- -------------------------------------------------------------------------------------------------
UTI Worldwide, Inc. 36,055 2,673,839
- -------------------------------------------------------------------------------------------------
$14,383,459
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,035,205,237) $1,099,062,332
- -------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 23.7%
- -------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost
and Net Asset Value 261,897,377 $261,897,377
- -------------------------------------------------------------------------------------------------
Repurchase Agreement - 0.7%
- -------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -------------------------------------------------------------------------------------------------
Morgan Stanley, 2.61%, dated 02/28/05, due 03/01/05,
total to be received $8,384,608 (secured by various
U.S. Treasury and Federal Agency obligations in a
jointly traded account), at Cost $8,384,000 $8,384,000
- -------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,305,486,614) $1,369,343,709
- -------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (23.9)% (264,321,350)
- -------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,105,022,359
- -------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
ADR = American Depository Receipts.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/28/05
ASSETS
Investments, at value, including $254,980,734 of
securities on loan (identified cost, $1,305,486,614) $1,369,343,709
- -----------------------------------------------------------------------------------------------------
Cash 154
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 7,924,430
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 1,643,808
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 80,428
- -----------------------------------------------------------------------------------------------------
Other assets 274
- -----------------------------------------------------------------------------------------------------
Total assets $1,378,992,803
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $3,758,950
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 7,525,826
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 261,897,377
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 73,455
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 366,895
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 44,674
- -----------------------------------------------------------------------------------------------------
Administrative fee 363
- -----------------------------------------------------------------------------------------------------
Program manager fee 45
- -----------------------------------------------------------------------------------------------------
Administrative service fee 21
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 302,838
- -----------------------------------------------------------------------------------------------------
Total liabilities $273,970,444
- -----------------------------------------------------------------------------------------------------
Net assets $1,105,022,359
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $1,373,009,872
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign
currencies 63,857,095
- -----------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and
foreign currency transactions (324,104,855)
- -----------------------------------------------------------------------------------------------------
Accumulated net investment loss (7,739,753)
- -----------------------------------------------------------------------------------------------------
Net assets $1,105,022,359
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 71,170,327
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $681,284,568
- -----------------------------------------------------------------------------------------------------
Shares outstanding 43,561,305
- -----------------------------------------------------------------------------------------------------
Net asset value per share $15.64
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$15.64) $16.59
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $228,627,799
- -----------------------------------------------------------------------------------------------------
Shares outstanding 15,157,241
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.08
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $65,662,322
- -----------------------------------------------------------------------------------------------------
Shares outstanding 4,347,652
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.10
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $112,297,776
- -----------------------------------------------------------------------------------------------------
Shares outstanding 7,002,658
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $16.04
- -----------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $14,006,822
- -----------------------------------------------------------------------------------------------------
Shares outstanding 898,248
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $15.59
- -----------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $1,014,251
- -----------------------------------------------------------------------------------------------------
Shares outstanding 65,231
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $15.55
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class 529A shares
Net assets $1,671,180
- -----------------------------------------------------------------------------------------------------
Shares outstanding 107,471
- -----------------------------------------------------------------------------------------------------
Net asset value per share $15.55
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$15.55) $16.50
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $159,304
- -----------------------------------------------------------------------------------------------------
Shares outstanding 10,630
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $14.99
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $298,337
- -----------------------------------------------------------------------------------------------------
Shares outstanding 19,891
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.00
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering prices of Class A and Class 529A
shares are reduced. A contingent deferred sales charge may be imposed on
redemptions of Class A, Class B, Class C, Class 529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
SIX MONTHS ENDED 2/28/05
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------
Dividends $1,686,043
- -----------------------------------------------------------------------------------------------------
Income on securities loaned 200,501
- -----------------------------------------------------------------------------------------------------
Interest 77,015
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (7,928)
- -----------------------------------------------------------------------------------------------------
Total investment income $1,955,631
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $5,430,091
- -----------------------------------------------------------------------------------------------------
Trustees" compensation 18,608
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 1,337,255
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 1,353,948
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 1,205,083
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 346,517
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 26,320
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 1,650
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 1,407
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 757
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 1,343
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 1,005
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 189
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 336
- -----------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 825
- -----------------------------------------------------------------------------------------------------
Administrative fee 32,390
- -----------------------------------------------------------------------------------------------------
Custodian fee 134,367
- -----------------------------------------------------------------------------------------------------
Printing 20,216
- -----------------------------------------------------------------------------------------------------
Postage 61,236
- -----------------------------------------------------------------------------------------------------
Auditing fees 26,092
- -----------------------------------------------------------------------------------------------------
Legal fees 21,797
- -----------------------------------------------------------------------------------------------------
Miscellaneous 336,156
- -----------------------------------------------------------------------------------------------------
Total expenses $10,357,588
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (75,829)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (600,081)
- -----------------------------------------------------------------------------------------------------
Net expenses $9,681,678
- -----------------------------------------------------------------------------------------------------
Net investment loss $(7,726,047)
- -----------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $95,672,290
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions 786
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $95,673,076
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments $94,034,267
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $94,034,267
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $189,707,343
- -----------------------------------------------------------------------------------------------------
Change in net assets from operations $181,981,296
- -----------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/28/05 8/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment loss $(7,726,047) $(20,299,003)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 95,673,076 210,953,469
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments 94,034,267 (288,980,394)
- ----------------------------------------------------------- -------------- ------------
Change in net assets from operations $181,981,296 $(98,325,928)
- ----------------------------------------------------------- -------------- ------------
Change in net assets from fund share transactions $(311,938,149) $(120,252,572)
- ----------------------------------------------------------- -------------- ------------
Redemption fees $4,440 $1,904
- ----------------------------------------------------------- -------------- ------------
Total change in net assets $(129,952,413) $(218,576,596)
- ----------------------------------------------------------- -------------- ------------
NET ASSETS
At beginning of period $1,234,974,772 $1,453,551,368
- -------------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $7,739,753 and $13,706, respectively) $1,105,022,359 $1,234,974,772
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the fund's operation). Certain information reflects financial
results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS A 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
period $13.53 $14.57 $11.99 $16.17 $25.00 $14.59
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment loss(S) $(0.09) $(0.18) $(0.13) $(0.18) $(0.20) $(0.26)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.20 (0.86) 2.71 (4.00) (5.02) 11.28
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $2.11 $(1.04) $2.58 $(4.18) $(5.22) $11.02
- ---------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(3.23) $(0.61)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency transactions -- -- -- (0.00)+++ (0.30) --
- ---------------------------------- ------ ------ ------ ------ ------ ------
From paid-in capital -- -- -- -- (0.08) --
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.00)+++ $(3.61) $(0.61)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to paid-
in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ---------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $15.64 $13.53 $14.57 $11.99 $16.17 $25.00
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+)& 15.59++ (7.14)^^ 21.52 (25.85) (22.37) 76.63
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS A (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.48+ 1.51 1.58 1.58 1.52 1.53
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.14)+ (1.20) (1.11) (1.21) (1.06) (1.17)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 122 104 102 49 103
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $681,285 $824,708 $1,004,473 $822,193 $1,050,554 $904,142
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. Prior to 2001, subject to
reimbursement by the fund, the investment adviser agreed to maintain the expenses of the fund, exclusive of management and
distribution and service fees, at not more than 0.25% of average daily net assets, effective November 1, 1997 through
December 31, 1999, and 0.30% through August 31, 2000. To the extent actual expenses were over/under these limitations and
the waivers had not been in place, the net investment loss per share and the ratios would have been:
Net investment loss $(0.09) $-- $-- $-- $-- $(0.26)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.58+ -- -- -- -- 1.51
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.24)+ -- -- -- -- (1.15)
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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. The
proceeds were paid to the fund on February 16, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS B 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
period $13.09 $14.19 $11.75 $15.95 $24.71 $14.46
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment loss(S) $(0.13) $(0.27) $(0.21) $(0.28) $(0.32) $(0.39)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.12 (0.83) 2.65 (3.92) (4.97) 11.17
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $1.99 $(1.10) $2.44 $(4.20) $(5.29) $10.78
- ---------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(3.10) $(0.53)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency transactions -- -- -- (0.00)+++ (0.29) --
- ---------------------------------- ------ ------ ------ ------ ------ ------
From paid-in capital -- -- -- -- (0.08) --
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.00)+++ $(3.47) $(0.53)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to paid-
in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ---------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $15.08 $13.09 $14.19 $11.75 $15.95 $24.71
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& )^
15.20++ (7.75^ 20.77 (26.33) (22.92) 75.50
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS B (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.13+ 2.15 2.23 2.23 2.17 2.18
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.79)+ (1.84) (1.76) (1.86) (1.70) (1.81)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 122 104 102 49 103
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $228,628 $231,653 $271,580 $232,792 $352,886 $483,805
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. Prior to 2001, subject to
reimbursement by the fund, the investment adviser agreed to maintain the expenses of the fund, exclusive of management and
distribution and service fees, at not more than 0.25% of average daily net assets, effective November 1, 1997 through
December 31, 1999, and 0.30% through August 31, 2000. To the extent actual expenses were over/under these limitations and
the waivers had not been in place, the net investment loss per share and the ratios would have been:
Net investment loss $(0.14) $-- $-- $-- $-- $(0.39)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.23+ -- -- -- -- 2.16
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.89)+ -- -- -- -- (1.79)
- -------------------------------------------------------------------------------------------------------------------------------
+ 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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. The
proceeds were paid to the fund on February 16, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS C 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
period $13.10 $14.21 $11.77 $15.97 $24.73 $14.47
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment loss(S) $(0.13) $(0.27) $(0.21) $(0.28) $(0.32) $(0.39)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.13 (0.84) 2.65 (3.92) (4.97) 11.18
- --------------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $2.00 $(1.11) $2.44 $(4.20) $(5.29) $10.79
- --------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(3.10) $(0.53)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency transactions -- -- -- (0.00)+++ (0.29) --
- --------------------------------- ------ ------ ------ ------ ------ ------
From paid-in capital -- -- -- -- (0.08) --
- --------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.00)+++ $(3.47) $(0.53)
- --------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to paid-
in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- --------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $15.10 $13.10 $14.21 $11.77 $15.97 $24.73
- --------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 15.27++ (7.81)^^ 20.73 (26.34) (22.87) 75.57
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS C (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.13+ 2.15 2.23 2.23 2.17 2.18
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.79)+ (1.84) (1.76) (1.86) (1.70) (1.79)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 122 104 102 49 103
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $65,662 $67,102 $84,391 $87,271 $136,530 $202,891
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. Prior to 2001, subject to
reimbursement by the fund, the investment adviser agreed to maintain the expenses of the fund, exclusive of management and
distribution and service fees, at not more than 0.25% of average daily net assets, effective November 1, 1997 through
December 31, 1999, and 0.30% through August 31, 2000. To the extent actual expenses were over/under these limitations and
the waivers had not been in place, the net investment loss per share and the ratios would have been:
Net investment loss $(0.14) $-- $-- $-- $-- $(0.39)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.23+ -- -- -- -- 2.16
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.89)+ -- -- -- -- (1.77)
- -------------------------------------------------------------------------------------------------------------------------------
+ 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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. The
proceeds were paid to the fund on February 16, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS I 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
period $13.85 $14.86 $12.19 $16.37 $25.26 $14.71
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment loss(S) $(0.06) $(0.13) $(0.09) $(0.13) $(0.13) $(0.18)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.25 (0.88) 2.76 (4.05) (5.09) 11.37
- --------------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $2.19 $(1.01) $2.67 $(4.18) $(5.22) $11.19
- --------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(3.28) $(0.64)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency transactions -- -- -- (0.00)+++ (0.31) --
- --------------------------------- ------ ------ ------ ------ ------ ------
From paid-in capital -- -- -- -- (0.08) --
- --------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(0.00)+++ $(3.67) $(0.64)
- --------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to paid-
in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- --------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $16.04 $13.85 $14.86 $12.19 $16.37 $25.26
- --------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 15.81++ (6.80)^^ 21.90 (25.58) (22.09) 77.22
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS I (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.13+ 1.16 1.23 1.23 1.17 1.18
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.79)+ (0.84) (0.75) (0.86) (0.71) (0.83)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 122 104 102 49 103
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $112,298 $103,031 $90,872 $47,641 $52,121 $35,311
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. Prior to 2001, subject to
reimbursement by the fund, the investment adviser agreed to maintain the expenses of the fund, exclusive of management and
distribution and service fees, at not more than 0.25% of average daily net assets, effective November 1, 1997 through
December 31, 1999, and 0.30% through August 31, 2000. To the extent actual expenses were over/under these limitations and
the waivers had not been in place, the net investment loss per share and the ratios would have been:
Net investment loss $(0.07) $-- $-- $-- $-- $(0.18)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.23+ -- -- -- -- 1.16
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.89)+ -- -- -- -- (0.81)
- -------------------------------------------------------------------------------------------------------------------------------
+ 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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. The
proceeds were paid to the fund on February 16, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 2/28/05 8/31/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $13.50 $14.57 $11.38###
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.10) $(0.20) $(0.11)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency 2.19 (0.87) 3.30
- -------------------------------------------------------------- ------- ------ ------
Total from investment operations $2.09 $(1.07) $3.19
- -------------------------------------------------------------- ------- ------ ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $--
- -------------------------------------------------------------- ------- ------ ------
Net asset value, end of period $15.59 $13.50 $14.57
- -------------------------------------------------------------- ------- ------ ------
Total return (%)& 15.48++ (7.34)^^ 28.03++###
- ----------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 (CONTINUED) 2/28/05 8/31/04 8/31/03*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.64+ 1.66 1.78+
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss (1.31)+ (1.32) (1.26)+
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 122 104
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $14,007 $7,262 $1,824
- ----------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser agreed to reimburse the fund for its proportional share of substantially all
of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been incurred by the fund,
the net investment loss per share would have been:
Net investment loss $(0.10) $(0.20) $--
- ----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.74+ 1.66 --
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss (1.41)+ (1.32) --
- ----------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002,
through August 31, 2003.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The net asset value and total return previously reported as $11.43 and 27.47%, respectively, have been revised to reflect
the net asset value from the day prior to the class" inception date. The net asset value and total return previously
reported were from inception date, the date the share class was first available to public shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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. The
proceeds were paid to the fund on February 16, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS PERIOD
ENDED ENDED
CLASS R2 2/28/05 8/31/04*
(UNAUDITED)
Net asset value, beginning of period $13.47 $15.35###
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.12) $(0.11)
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and
foreign currency 2.20 (1.77)
- ------------------------------------------------------------------- ---------- ------
Total from investment operations $2.08 $(1.88)
- ------------------------------------------------------------------- ---------- ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++
- ------------------------------------------------------------------- ---------- ------
Net asset value, end of period $15.55 $13.47
- ------------------------------------------------------------------- ---------- ------
Total return (%)& 15.44++ (12.25)++^^###
- ------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.90+ 1.73+
- ------------------------------------------------------------------------------------------------------
Net investment loss (1.57)+ (1.23)+
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 59 122
- ------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,014 $454
- ------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. In
addition, effective June 7, 2004, the investment adviser agreed to reimburse the fund for its
proportional share of substantially all of Independent Chief Compliance Officer service fees
paid to Tarantino LLC. If these fees had been incurred by the fund, the net investment loss per
share would have been:
Net investment loss $(0.12) $(0.11)
- ------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.00+ 1.73+
- ------------------------------------------------------------------------------------------------------
Net investment loss (1.67)+ (1.23)+
- ------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
+ 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 net asset value and total return previously reported as $15.23 and (11.56)%, respectively,
have been revised to reflect the net asset value from the day prior to the class" inception
date. The net asset value and total return previously reported were from inception date, the
date the share class was first available to public shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which
performance would be lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded
as a result of an administrative proceeding regarding disclosure of brokerage allocation
practices in connection with fund sales, as described in the Legal Proceedings and Transactions
with Affiliates footnotes. The non-recurring accrual 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. The
proceeds were paid to the fund on February 16, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529A 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $13.47 $14.53 $11.99 $11.95###
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.11) $(0.21) $(0.16) $(0.01)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 2.19 (0.85) 2.70 0.05
- ------------------------------------------------- ------- ------ ------ ------
Total from investment operations $2.08 $(1.06) $2.54 $0.04
- ------------------------------------------------- ------- ------ ------ ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- ------------------------------------------------- ------- ------ ------ ------
Net asset value, end of period $15.55 $13.47 $14.53 $11.99
- ------------------------------------------------- ------- ------ ------ ------
Total return (%)(+)& 15.44++ (7.30)^^ 21.18 0.33++###
- -------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529A (CONTINUED) 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 1.76+ 1.75 1.84 1.83+
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.45)+ (1.43) (1.35) (1.20)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 122 104 102
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $1,671 $390 $180 $10
- -------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been
incurred by the fund, the net investment loss per share would have been:
Net investment loss $(0.12) $(0.21) $-- $--
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.86+ 1.75 -- --
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.55)+ (1.43) -- --
- -------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The net asset value and total return previously reported as $11.85 and 1.18%, respectively, have been revised to
reflect the net asset value from the day prior to the class" inception date. The net asset value and total return
previously reported were from inception date, the date the share class was first available to public shareholders.
(+) Total returns for Class 529A shares do not include the applicable sales charge. If the charge had been included, the
results would have been lower.
& From time to time the fund may receive proceeds from litigation
settlements, without which performance would be lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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. The proceeds were paid to the fund on February 16, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529B 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $13.02 $14.15 $11.75 $11.71###
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.15) $(0.30) $(0.24) $(0.02)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 2.12 (0.83) 2.64 0.06
- ------------------------------------------------- ------- ------ ------ ------
Total from investment operations $1.97 $(1.13) $2.40 $0.04
- ------------------------------------------------- ------- ------ ------ ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- ------------------------------------------------- ------- ------ ------ ------
Net asset value, end of period $14.99 $13.02 $14.15 $11.75
- ------------------------------------------------- ------- ------ ------ ------
Total return (%)& 15.13++ (7.99)^^ 20.43 0.34++###
- -------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529B (CONTINUED) 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 2.38+ 2.40 2.49 2.48+
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (2.04)+ (2.07) (1.99) (1.87)+
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 122 104 102
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $159 $135 $84 $6
- -------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been
incurred by the fund, the net investment loss per share would have been:
Net investment loss $(0.16) $(0.30) $-- $--
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.48+ 2.40 -- --
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (2.14)+ (2.07) -- --
- -------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The net asset value and total return previously reported as $11.62 and 1.12%, respectively, have been revised to
reflect the net asset value from the day prior to the class" inception date. The net asset value and total return
previously reported were from inception date, the date the share class was first available to public shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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. The proceeds were paid to the fund on February 16, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529C 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $13.03 $14.16 $11.77 $11.73###
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.15) $(0.31) $(0.24) $(0.02)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 2.12 (0.82) 2.63 0.06
- ------------------------------------------------- ------- ------ ------ ------
Total from investment operations $1.97 $(1.13) $2.39 $0.04
- ------------------------------------------------- ------- ------ ------ ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- ------------------------------------------------- ------- ------ ------ ------
Net asset value, end of period $15.00 $13.03 $14.16 $11.77
- ------------------------------------------------- ------- ------ ------ ------
Total return (%)& 15.12++ (7.98)^^ 20.31 0.34++###
- -------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529C (CONTINUED) 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Expenses## 2.38+ 2.40 2.50 2.48+
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (2.05)+ (2.08) (1.99) (1.88)+
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 122 104 102
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $298 $240 $147 $5
- -------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for certain of the periods indicated. In addition,
effective June 7, 2004, the investment adviser agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been
incurred by the fund, the net investment loss per share would have been:
Net investment loss $(0.16) $(0.31) $-- $--
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.48+ 2.40 -- --
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (2.15)+ (2.08) -- --
- -------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The net asset value and total return previously reported as $11.64 and 1.12%, respectively, have been revised to
reflect the net asset value from the day prior to the class" inception date. The net asset value and total return
previously reported were from inception date, the date the share class was first available to public shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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. The proceeds were paid to the fund on February 16, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS New Discovery Fund (the fund) is a diversified series of MFS Series Trust I
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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. Money market
mutual funds are valued at net asset value. Investment valuations, other
assets, and liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars based upon current exchange rates. 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.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the fund with indemnification against Borrower default. The
fund bears the risk of loss with respect to the investment of cash collateral.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or short-term securities. A portion of the income generated upon
investment of the collateral is remitted to the Borrowers, and the remainder is
allocated between the fund and the lending agent. On loans collateralized by
U.S. Treasury securities, a fee is received from the Borrower, and is allocated
between the fund and the lending agent. The dividend and interest income earned
on the securities loaned is accounted for in the same manner as other dividend
and interest income.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, the fund will charge a 2% redemption fee on proceeds from Class A,
Class B, Class C, and Class I shares redeemed or exchanged within 5 business
days following their acquisition. Due to systems limitations associated with
the transition from applying a 30 calendar day redemption fee to a 5 business
day redemption fee, the fund will not impose redemption fees with respect to
purchases made in June 2004 followed by redemptions made in July 2004.
Effective April 1, 2005, the fund will charge a 1% redemption fee on proceeds
from Class A, Class B, Class C, and Class I shares redeemed or exchanged within
30 calendar days following their acquisition. Due to systems limitations
associated with the transition from applying a 5 business day redemption fee to
a 30 calendar day redemption fee, the fund will not impose redemption fees with
respect to purchases made in March 2005 followed by redemptions made in April
2005. The fund may change the redemption fee period in the future, including in
connection with Securities and Exchange Commission rule developments. See the
fund's prospectus for details. Any redemption 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.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the statement of operations, or in unrealized gain/loss if the security is
still held by the fund.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. During the six months ended February 28, 2005, the fund's custodian fees
were reduced by $19,951 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the six months ended February 28, 2005, the fund's miscellaneous
expenses were reduced by $55,878 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, wash sales, and capital losses.
The fund paid no distributions for the years ended August 31, 2004 and August
31, 2003.
As of February 28, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $--
----------------------------------------------------------
Capital loss carryforward (417,302,416)
----------------------------------------------------------
Unrealized appreciation (depreciation) (32,652,687)
----------------------------------------------------------
Other temporary differences (13,706)
----------------------------------------------------------
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 as follows:
EXPIRATION DATE
August 31, 2010 $(63,294,814)
----------------------------------------------------------
August 31, 2011 (354,007,602)
----------------------------------------------------------
Total $(417,302,416)
----------------------------------------------------------
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates are
generally due to differences in separate class expenses. Class B and Class 529B
shares will convert to Class A and Class 529A shares, respectively,
approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.90% of
the fund's average daily net assets. Effective September 1, 2004, MFS has
agreed to a contractual reduction in its management fee to an annual rate of
0.80% on net assets up to $1.5 billion and further reduced to 0.75% on net
assets in excess of $1.5 billion. This fee reduction arrangement may only be
changed with approval by the Board of Trustees which oversees the fund.
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). On January 1,
2002 the Trustees terminated the Independent trustee unfunded defined benefit
plan for active trustees. Included in Trustees" compensation is a pension
expense of $591 for retired Independent Trustees for the six months ended
February 28, 2005.
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. On July 28,
2004, the fund accrued an estimate of the amount to be received pursuant to
this matter in the amount of $171,376, which 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. The proceeds were paid to the fund on February 16,
2005.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. 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. The
fund paid MFS an administrative fee up to the following annual percentage rates
of the fund's average daily net assets:
4/01/04
THROUGH
EFFECTIVE DATE 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
- ---------------------------------------------------------------------------
Next $2.5 billion 0.00832% 0.01206%
- ---------------------------------------------------------------------------
Next $2.5 billion 0.00032% 0.00056%
- ---------------------------------------------------------------------------
In excess of $7 billion 0.00000% 0.00000%
- ---------------------------------------------------------------------------
The March 1, 2005 rates were not effective during the current reporting period.
For the six months ended February 28, 2005, the fund paid MFS $32,390,
equivalent to 0.0054% 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
$28,463 and $613 for the six months ended February 28, 2005, 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 as compensation for services provided by MFD and financial
intermediaries in connection with the distribution and servicing of its shares.
One component of the plan is a distribution fee and another is a service fee
paid by MFD to financial intermediaries that enter into sales or service
agreements with MFD or its affiliates based on the average daily net assets of
accounts attributable to such intermediaries. 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 may retain all or a portion of the service fee, including for accounts for
which there is no financial intermediary of record. Service fees retained by
MFD for the six months ended February 28, 2005 amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $15,331 $1,872 $881 $0 $12
- --------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $90 $8 $30
- --------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February
28, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual
Percentage Rates 0.35% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Effective Annual
Percentage Rates 0.35% 1.00% 1.00%
- --------------------------------------------------------------------------------
Payment of the 0.15% per annum portion of the Class 529A distribution fee that
is not currently being charged will be implemented on such 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 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 of purchase. MFD receives
all contingent deferred sales charges. Contingent deferred sales charges
imposed during the six months ended February 28, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred Sales
Charges Imposed $40,520 $180,583 $4,149 $18 $0
- --------------------------------------------------------------------------------
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 December 31, 2004, the fund was charged up to 0.0861%
of its average daily net assets. For the period January 1, 2005 through
February 28, 2005, the fund is charged up to 0.1035% of its average daily net
assets. For the six months ended February 28, 2005, the fund paid MFSC a fee of
$543,402 for shareholder services which equated to 0.0899% of the fund's
average daily net assets. Effective March 1, 2005, the fund is charged up to
0.1159% of its average daily net assets. Shareholder service costs include out
of pocket expenses and sub accounting services expenses paid by MFSC on behalf
of the fund and subsequently reimbursed to MFSC which amounted to $539,904, and
other costs paid by the fund directly to unaffiliated vendors for the six
months ended February 28, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$709,811,132 and $997,908,880, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $1,307,962,129
- ------------------------------------------------------------------------------
Gross unrealized appreciation $130,758,181
- ------------------------------------------------------------------------------
Gross unrealized depreciation (69,376,601)
- ------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $61,381,580
- ------------------------------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended 2/28/05 Year ended 8/31/04*
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 6,777,573 $103,252,360 27,881,162 $427,444,261
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (24,186,242) (366,771,864) (35,845,570) (543,460,338)
- ------------------------------------------------------------------------------------------------------------
Net change (17,408,669) $(263,519,504) (7,964,408) $(116,016,077)
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 971,785 $14,342,225 4,190,532 $62,289,343
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (3,513,848) (51,905,181) (5,630,740) (82,666,681)
- ------------------------------------------------------------------------------------------------------------
Net change (2,542,063) $(37,562,956) (1,440,208) $(20,377,338)
- ------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 352,411 $5,195,607 1,285,450 $19,079,978
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,125,249) (16,612,493) (2,103,564) (31,044,196)
- ------------------------------------------------------------------------------------------------------------
Net change (772,838) $(11,416,886) (818,114) $(11,964,218)
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 1,050,221 $16,514,263 4,167,456 $65,121,180
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,488,549) (23,384,794) (2,840,698) (44,371,479)
- ------------------------------------------------------------------------------------------------------------
Net change (438,328) $(6,870,531) 1,326,758 $20,749,701
- ------------------------------------------------------------------------------------------------------------
CLASS R1 SHARES
Shares sold 535,147 $8,282,618 678,187 $10,521,406
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (174,894) (2,639,711) (265,383) (4,086,141)
- ------------------------------------------------------------------------------------------------------------
Net change 360,253 $5,642,907 412,804 $6,435,265
- ------------------------------------------------------------------------------------------------------------
CLASS R2 SHARES
Shares sold 49,559 $788,421 48,031 $704,104
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (17,985) (288,825) (14,374) (221,632)
- ------------------------------------------------------------------------------------------------------------
Net change 31,574 $499,596 33,657 $482,472
- ------------------------------------------------------------------------------------------------------------
CLASS 529A SHARES
Shares sold 85,900 $1,375,928 17,857 $272,955
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (7,384) (113,515) (1,267) (18,993)
- ------------------------------------------------------------------------------------------------------------
Net change 78,516 $1,262,413 16,590 $253,962
- ------------------------------------------------------------------------------------------------------------
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS 529B SHARES
Shares sold 566 $8,357 4,746 $70,399
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (284) (4,184) (316) (4,635)
- ------------------------------------------------------------------------------------------------------------
Net change 282 $4,173 4,430 $65,764
- ------------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 3,414 $51,377 9,841 $145,885
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,925) (28,738) (1,827) (27,988)
- ------------------------------------------------------------------------------------------------------------
Net change 1,489 $22,639 8,014 $117,897
- ------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
The fund is one of several MFS mutual funds in which the MFS Asset Allocation
Funds may invest. The MFS Asset Allocation Funds do not invest in the
underlying MFS funds for the purpose of exercising management or control. At
the end of the period, the MFS Aggressive Growth Allocation Fund was the owner
of record of approximately 3% of the total outstanding shares.
(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 six months ended February 28, 2005 was $3,466,
and is included in miscellaneous expense. The fund had no significant
borrowings during the six months ended February 28, 2005.
(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. 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 intermediaries who support the sale of MFS
fund shares. 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. The
final distribution plan was approved by the SEC on January 21, 2005 and the
affected MFS funds received the payment on February 16, 2005.
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 open-end retail fund ("MFS
retail funds") 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 they
prohibited market timing, MFS did not limit trading activity in 11 domestic
large cap stock, high grade bond and money market retail funds. MFS" former
Chief Executive Officer and former President 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. These individuals 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, MFS Fund Distributors, Inc., MFS Service Center,
Inc., MFS Corporation Retirement Committee, Sun Life Financial Inc., various
MFS funds, certain current and/or former 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 ERISA
actions by participants in certain retirement plan accounts on behalf of those
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, Allianz Dresdner),
No. 1:04-md-15863 (transfer began March 19, 2004)). The market timing cases
related to the MFS complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM
(direct), Hammerslough v. MFS et al., Case No. 04-md-01620 (derivative) and
Anita Walker v. MFS et al., Case No. 1:04-CV-01758 (ERISA). The plaintiffs in
these consolidated lawsuits generally seek injunctive relief including removal
of the named Trustees, adviser and distributor, rescission of contracts and
12b-1 Plans, disgorgement of fees and profits, monetary damages, punitive
damages, attorney's fees and costs and other equitable and declaratory relief.
Two 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) (a consolidated action) and Marcus Dumond, et al. v. Massachusetts
Financial Servs. Co., et al., No. 04cv11458 (GAO)). The plaintiffs in these
lawsuits generally seek compensatory damages, punitive damages, recovery of
fees, rescission of contracts, an accounting, restitution, declaratory relief,
equitable and/or injunctive relief and attorney's fees and costs. The various
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 (ii) received excessive compensation as fiduciaries to the MFS funds,
or (iii) 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. 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 certain 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 distributed $50 million 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.
- -------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
- -------------------------------------------------------------------------------
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.
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.
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
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
NDF-SEM-04/05 101M
MFS(R) RESEARCH INTERNATIONAL FUND 2/28/05
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
SEMIANNUAL REPORT
LETTER FROM THE CEO 1
------------------------------------------------------
PORTFOLIO COMPOSITION 4
------------------------------------------------------
MANAGEMENT REVIEW 5
------------------------------------------------------
PERFORMANCE SUMMARY 8
------------------------------------------------------
EXPENSE TABLE 13
------------------------------------------------------
PORTFOLIO OF INVESTMENTS 15
------------------------------------------------------
FINANCIAL STATEMENTS 20
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 45
------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 59
------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 59
------------------------------------------------------
CONTACT INFORMATION BACK COVER
------------------------------------------------------
- -------------------------------------------------------------------------------
LETTER FROM THE CEO
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Last summer and fall, I wrote to you about enhancements that MFS(R) was making
to its investment process. Our goal, as always, was to deliver strong
performance across all asset classes. I am now happy to report to you that
2004 was a very successful year for MFS, relative to our peers in the mutual
fund industry. While there will always be room for improvement, we believe the
enhancements we have made to our investment process resulted in significantly
improved performance across the MFS Family of Funds(R).
You may remember some of the enhancements I outlined last year.
They included
o increasing collaboration and information sharing among our investment
personnel across asset classes, through an Investment Management Committee
with members from our Domestic Equity, International Equity, Fixed Income,
and Quantitative Research teams
o increasing the number of analysts supporting our portfolio managers and
doubling the average investment experience of our domestic equity analyst
staff
o making additional use of our most-seasoned portfolio managers to mentor
research analysts
o combining more quantitative, top-down risk control and security analysis
with our traditional bottom-up research process
o opening a research office in Mexico City to complement our existing staff in
Boston, London, Singapore, and Tokyo
The effect of these enhancements, I believe, is evident in the 2004 performance
of our funds. For the 12 months ended December 31, 2004, 80% of MFS domestic
equity funds, 100% of MFS international equity funds, and 80% of MFS fixed-
income funds delivered results in the top half of their Lipper peer groups.
Our longer-term performance also benefited from our ongoing commitment to the
MFS Original Research(R) process: more than 75% of MFS funds were in the top
half of their respective Lipper categories over the 3-, 5-, and 10-year
periods ended December 31, 2004.
Of course, I cannot offer any guarantees that our performance will repeat
itself. Still, I am confident that the recent enhancements to our investment
process will continue to benefit shareholders in 2005 and beyond.
What I can tell you with certainty is that the way you manage your investments
will determine how well you take advantage of the performance that financial
markets deliver. Historically, individual investors have tended to
underperform the markets. For example, a 2003 study by DALBAR, Inc. showed
that over the nearly two decades from 1984 through 2002, the average U.S.
stock investor earned a 2.6% average annual return at a time when U.S. stocks,
as measured by the Standard & Poor's 500 Stock Index, delivered a 12.2%
average annual return.(1)
This huge discrepancy, in our view, occurred because nonprofessional investors
generally did not adhere to the basic principles followed by most professional
investors: allocate among asset classes, diversify within each asset class,
and rebalance one's portfolio on a routine schedule. I elaborated on this
"ADR" theme in fund reports over the last few months of 2004. For more
information on how to apply a Disciplined Diversification(SM) strategy to your
portfolio using the principles of ADR, I would urge you to contact your own
investment professional. You may also want to refer to information on the
subject on our Web site, MFS.COM.
As always, we appreciate your confidence in MFS, and you can be sure of our
continued commitment to do the best we can to help you pursue your long-term
financial goals.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
April 15, 2005
It is not possible to invest directly in an index.
Lipper rankings and performance are based on historical average annual returns
of Class A shares, and do not include any sales charges. Past performance is
no guarantee of future results.
Asset allocation and diversification cannot guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
(1) Source: DALBAR July 2003 update to its Quantitative Analysis of Investment
Behavior; DALBAR, Inc., is a financial-services market research firm
headquartered in Boston, MA.
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
PORTFOLIO STRUCTURE
Stocks 98.5%
Cash & Other Net Assets 1.5%
TOP TEN HOLDINGS
Total S.A. 2.8%
-------------------------------------------
Nestle S.A. 2.3%
-------------------------------------------
Vodafone Group PLC 2.2%
-------------------------------------------
Royal Bank of Scotland Group PLC 2.1%
-------------------------------------------
Suez S.A. 2.0%
-------------------------------------------
Sandvik AB 2.0%
-------------------------------------------
Samsung Electronics Co. Ltd. 2.0%
-------------------------------------------
Seiko Epson Corp. 2.0%
-------------------------------------------
Telefonica S.A. 1.9%
-------------------------------------------
Schneider Electric S.A. 1.8%
-------------------------------------------
SECTOR WEIGHTINGS
Financial Services 27.3%
-------------------------------------------
Utilities & Communications 11.2%
-------------------------------------------
Energy 9.1%
-------------------------------------------
Health Care 7.7%
-------------------------------------------
Technology 6.6%
-------------------------------------------
Autos & Housing 6.4%
-------------------------------------------
Consumer Staples 6.3%
-------------------------------------------
Industrial Goods & Services 6.3%
-------------------------------------------
Basic Materials 6.1%
-------------------------------------------
Leisure 5.2%
-------------------------------------------
Retailing 2.8%
-------------------------------------------
Miscellaneous 2.3%
-------------------------------------------
Transportation 1.2%
-------------------------------------------
COUNTRY WEIGHTINGS
Japan 20.6%
-------------------------------------------
Great Britain 17.3%
-------------------------------------------
France 13.9%
-------------------------------------------
Switzerland 7.3%
-------------------------------------------
South Korea 4.6%
-------------------------------------------
Sweden 3.3%
-------------------------------------------
Spain 3.2%
-------------------------------------------
Mexico 3.1%
-------------------------------------------
Germany 2.9%
-------------------------------------------
Other 23.8%
-------------------------------------------
Percentages are based on net assets as of 2/28/05.
The portfolio is actively managed, and current holdings may be different.
- ------------------------------------------------------------------------------
MANAGEMENT REVIEW
- ------------------------------------------------------------------------------
SUMMARY OF RESULTS
For the six months ended February 28, 2005, Class A shares of the MFS Research
International Fund provided a total return of 19.57%, not including sales
charges. In comparison, the fund's benchmark, the MSCI EAFE Index, returned
21.28%. The fund's investment objective is capital appreciation. The fund
invests, under normal market conditions, at least 65% of its net assets in
common stocks and related securities, such as preferred stocks, convertible
securities and depositary receipts of foreign companies. The fund focuses on
foreign companies (including emerging market issuers) that MFS believes have
favorable growth prospects and attractive valuations based on current and
expected earnings or cash flow. The fund does not generally emphasize any
particular country and, under normal market conditions, will be invested in at
least five countries.
MARKET ENVIRONMENT
Over the period, many measures of global economic growth, including employment
and corporate spending, continued to improve, although we feel that high oil
prices, rising short-term interest rates in the United States, a significant
decline in the value of the U.S. dollar against most major currencies, and
geopolitical uncertainty impacted markets. But, oil prices pulled back from
their record levels toward the end of 2004 and, in our view, investors seemed
to turn their attention to strong corporate profits and economic growth.
DETRACTORS TO PERFORMANCE
Stock selection in the Asian financial services sector held back relative
performance during the period. Our overweighted positions in poor performing
real estate financing concern Leopalace21* and consumer finance company
Takefuji detracted from relative results.
Stock selection in the retailing and technology/business services sectors also
dampened relative performance. Sekisui Chemical and technology companies Seiko
Epson and Softbank, were among the fund's top detractors for the period. Funai
Electric, which is not in the benchmarks, also hurt
relative results.
Stocks in other sectors that held back relative returns included health care
company AstraZeneca and video game console maker Nintendo.
During the reporting period, shifts in currency valuations were a significant
detractor from performance relative to the benchmark. The base currency of the
fund is the U.S. dollar and the performance of the fund and its benchmark are
presented in terms of this currency. Nevertheless, specific holdings of the
fund and benchmark may be denominated in different currencies and, therefore,
present the possibility of currency depreciation or appreciation. Because the
exposures of the fund and the benchmark to foreign currency movements may
differ, from time to time, these movements may have a material impact on
relative performance.
The fund's cash position held back relative performance. As with nearly all
mutual funds, this fund holds some cash to buy new holdings and to provide
liquidity. In a period when international equity markets, as represented by
the MSCI EAFE Index rose measurably, holding any cash hurt performance
relative to our benchmark which does not have a cash position.
CONTRIBUTORS TO PERFORMANCE
The energy, European financial services, and utilities and telecommunications
sectors were among the fund's most significant contributors to relative
performance over the period. Stock selection was the major driver of positive
results in all three sectors.
In the energy sector our positions in MOL Magyar and Tenaris, both not held in
the benchmark, contributed to the fund's relative returns as both stocks
exhibited strong performance during the period. In the European financial
services sector our holdings of OTP Bank and Anglo Irish Bank, both not held
in the index, boosted relative results.
Telecommunications companies America Movil* and Bharti Tele-Ventures*, both
not in the index, aided relative results for the period. Our holdings of power
producer Suez (France) also helped the fund's returns.
Stocks in other sectors that positively contributed to investment results
included Brazilian mining company Companhia Vale do Rio Doce, directories
publisher Yell Group, and technology company Samsung Electronics.
Respectfully,
/s/ David A. Antonelli
David A. Antonelli
Director of Global Equity Research
The fund is managed by a team of analysts under the general supervision of
David A. Antonelli.
*Security was not held in the portfolio at period-end.
The views expressed in this report are those of the portfolio management team
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.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/28/05
- --------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Performance results reflect the percentage change
in net asset value, including the reinvestment of any dividends and capital
gains distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR I SHARES, PLEASE CALL 1-888-808-6374.) 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.
HIGH SHORT-TERM RETURNS FOR ANY PERIOD MAY BE AND LIKELY WERE ATTRIBUTABLE TO
FAVORABLE MARKET CONDITIONS DURING THAT PERIOD, WHICH MAY NOT BE REPEATABLE.
THE PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/97 19.57% 20.42% 14.52% 1.18% 9.12%
- ------------------------------------------------------------------------------
B 1/02/98 19.11% 19.63% 13.80% 0.53% 8.54%
- ------------------------------------------------------------------------------
C 1/02/98 19.17% 19.70% 13.81% 0.54% 8.53%
- ------------------------------------------------------------------------------
I 1/02/97 19.76% 20.84% 14.93% 1.53% 9.48%
- ------------------------------------------------------------------------------
R1** 12/31/02 19.44% 20.29% 14.40% 1.12% 9.08%
- ------------------------------------------------------------------------------
R2** 10/31/03 19.31% 19.99% 14.30% 1.07% 9.04%
- ------------------------------------------------------------------------------
529A 7/31/02 19.39% 20.15% 14.28% 1.06% 9.03%
- ------------------------------------------------------------------------------
529B 7/31/02 19.01% 19.36% 13.64% 0.72% 8.81%
- ------------------------------------------------------------------------------
529C 7/31/02 19.00% 19.35% 13.65% 0.72% 8.81%
- ------------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
Average international multi-
cap core fund+ 20.52% 17.40% 12.96% -0.45% 5.93%
- ------------------------------------------------------------------------------
MSCI EAFE Index# 21.28% 19.14% 15.02% 0.45% 5.41%
- ------------------------------------------------------------------------------
- --------------------
Average annual
with sales charge
- --------------------
Share class
- ------------------------------------------------------------------------------
A 12.70% 13.49% 12.28% -0.01% 8.33%
- ------------------------------------------------------------------------------
B 15.11% 15.63% 13.03% 0.15% 8.54%
- ------------------------------------------------------------------------------
C 18.17% 18.70% 13.81% 0.54% 8.53%
- ------------------------------------------------------------------------------
529A 12.52% 13.24% 12.05% -0.13% 8.25%
- ------------------------------------------------------------------------------
529B 15.01% 15.36% 12.86% 0.35% 8.81%
- ------------------------------------------------------------------------------
529C 18.00% 18.35% 13.65% 0.72% 8.81%
- ------------------------------------------------------------------------------
I, RI and R2 Class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 19.57% 20.42% 50.19% 6.06% 103.74%
- ------------------------------------------------------------------------------
B 19.11% 19.63% 47.39% 2.67% 95.07%
- ------------------------------------------------------------------------------
C 19.17% 19.70% 47.41% 2.72% 94.95%
- ------------------------------------------------------------------------------
I 19.76% 20.84% 51.80% 7.91% 109.29%
- ------------------------------------------------------------------------------
R1** 19.44% 20.29% 49.72% 5.72% 103.10%
- ------------------------------------------------------------------------------
R2** 19.31% 19.99% 49.34% 5.46% 102.59%
- ------------------------------------------------------------------------------
529A 19.39% 20.15% 49.25% 5.40% 102.47%
- ------------------------------------------------------------------------------
529B 19.01% 19.36% 46.75% 3.63% 99.07%
- ------------------------------------------------------------------------------
529C 19.00% 19.35% 46.80% 3.67% 99.14%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
January 2, 1997,
through February 28, 2005. Index information is from January 2, 1997.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
** Effective April 1, 2005, Class R1 shares have been renamed "Class R
shares," and Class R2 shares have been renamed "Class R3 shares." In
addition, on April 1, 2005, the fund launched the following new R Classes:
R1, R2, R4, and R5. All references herein to Class R1 and Class R2 shares
are as of February 28, 2005, and do not reflect the renaming of Class R1
and Class R2 shares.
Periods less than one year are actual, not annualized.
INDEX DEFINITION
MSCI EAFE Index: MSCI EAFE (Europe, Australasia, Far East) Index is a free
float-adjusted market capitalization index that is designed to measure
developed market equity performance, excluding the U.S. and Canada.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results including sales charge reflect the deduction of the
maximum 5.75% sales charge. Class B and 529B results including sales charge
reflect the deduction of the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C and 529C results
including sales charge (assuming redemption within one year from the end of
the prior month of purchase) reflect the deduction of the 1% CDSC. Class I
shares have no sales charges and are available only to certain investors.
Class R1 and R2 shares have no sales charges and are available only to certain
retirement plans. Class 529A, 529B, 529C shares are only available in
conjunction with qualified tuition programs, such as the MFS 529 Savings Plan.
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.
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 share class to which it
is blended, and lower performance for share classes with lower operating
expenses than the 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.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
This is the risk that the price of a security held by the fund will fall due
to changing economic, political or market conditions or disappointing
earnings results.
Prices of securities react to the economic condition of the company that
issued the security. The fund's investments in an issuer may rise and fall
based on the issuer's actual and anticipated earnings, changes in management
and the potential for takeovers and acquisitions. Companies may be less likely
to pay dividends in difficult financial environments.
Investing in foreign securities involves risks relating to political, social and
economic developments abroad, as well as risks resulting from the differences
between the regulations to which U.S. and foreign issuers and markets are
subject.
Emerging markets are generally defined as countries in the initial stages of
their industrialization cycles with low per capita income. The markets of
emerging markets countries are generally more volatile than the markets of
developed countries with more mature economies. All of the risks of investing in
foreign securities described above are heightened when investing in emerging
markets countries.
Over-the-counter (OTC) transactions involve risks in addition to those incurred
by transactions in securities traded on exchanges. OTC-listed companies may have
limited product lines, markets or financial resources. Many OTC stocks trade
less frequently and in smaller volume than exchange-listed stocks. The values of
these stocks may be more volatile than exchange-listed stocks, and the fund may
experience difficulty in buying and selling these securities at a fair price.
The fund may invest from time to time a substantial amount of its assets in
issuers located in a single country or a limited number of countries. If the
fund concentrates its investments in this manner, it assumes the risk that
economic, political and social conditions in those countries will have a
significant impact on its investment performance. The fund's investment
performance may also be more volatile if it concentrates its investments in
certain countries, especially emerging market countries.
The fund has engaged and may engage in active and frequent trading to achieve
its principal investment strategies. This may result in the realization and
distribution to shareholders of higher capital gains as compared to a fund with
less active trading policies, which would increase your tax liability unless you
hold your shares through a tax deferred or exempt vehicle (such as an Individual
Retirement Account (IRA)). Frequent trading also increases transaction costs,
which could detract from the fund's performance.
Please see the prospectus for further information regarding these and other
risk considerations.
- -------------------------------------------------------------------------------
EXPENSE TABLE
- -------------------------------------------------------------------------------
FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM
SEPTEMBER 1, 2004, THROUGH FEBRUARY 28, 2005.
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, September 1, 2004 through
February 28, 2005.
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 9/01/04 2/28/05 9/01/04-2/28/05
- -------------------------------------------------------------------------------
Actual 1.56% $1,000 $1,196 $8.49
A -------------------------------------------------------------------------
Hypothetical* 1.56% $1,000 $1,017 $7.80
- -------------------------------------------------------------------------------
Actual 2.21% $1,000 $1,191 $12.01
B -------------------------------------------------------------------------
Hypothetical* 2.21% $1,000 $1,014 $11.04
- -------------------------------------------------------------------------------
Actual 2.21% $1,000 $1,192 $12.01
C -------------------------------------------------------------------------
Hypothetical* 2.21% $1,000 $1,014 $11.04
- -------------------------------------------------------------------------------
Actual 1.21% $1,000 $1,198 $6.59
I -------------------------------------------------------------------------
Hypothetical* 1.21% $1,000 $1,019 $6.06
- -------------------------------------------------------------------------------
Actual 1.71% $1,000 $1,194 $9.30
R1 -------------------------------------------------------------------------
Hypothetical* 1.71% $1,000 $1,016 $8.55
- -------------------------------------------------------------------------------
Actual 1.95% $1,000 $1,193 $10.60
R2 -------------------------------------------------------------------------
Hypothetical* 1.95% $1,000 $1,015 $9.74
- -------------------------------------------------------------------------------
Actual 1.80% $1,000 $1,194 $9.79
529A -------------------------------------------------------------------------
Hypothetical* 1.80% $1,000 $1,016 $9.00
- -------------------------------------------------------------------------------
Actual 2.46% $1,000 $1,190 $13.36
529B -------------------------------------------------------------------------
Hypothetical* 2.46% $1,000 $1,013 $12.28
- -------------------------------------------------------------------------------
Actual 2.46% $1,000 $1,190 $13.36
529C -------------------------------------------------------------------------
Hypothetical* 2.46% $1,000 $1,013 $12.28
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** 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 (unaudited) - 2/28/05
- -------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Stocks - 98.5%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------
Airlines - 1.2%
- -------------------------------------------------------------------------------------------------
easyJet Airline Co. Ltd.* 2,664,880 $11,909,660
- -------------------------------------------------------------------------------------------------
TPG N.V. 369,180 10,332,297
- -------------------------------------------------------------------------------------------------
$22,241,957
- -------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.1%
- -------------------------------------------------------------------------------------------------
Diageo PLC 1,346,290 $19,162,954
- -------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.7%
- -------------------------------------------------------------------------------------------------
Burberry Group PLC 1,589,390 $12,067,751
- -------------------------------------------------------------------------------------------------
Automotive - 3.0%
- -------------------------------------------------------------------------------------------------
Compagnie Generale des Etablissements Michelin^ 218,340 $15,595,053
- -------------------------------------------------------------------------------------------------
PSA Peugeot Citroen S.A.^ 196,560 12,888,121
- -------------------------------------------------------------------------------------------------
Toyota Motor Corp. 666,000 25,947,638
- -------------------------------------------------------------------------------------------------
$54,430,812
- -------------------------------------------------------------------------------------------------
Banks & Credit Companies - 22.3%
- -------------------------------------------------------------------------------------------------
Aiful Corp. 201,100 $23,062,059
- -------------------------------------------------------------------------------------------------
Akbank 1,555,700 9,729,966
- -------------------------------------------------------------------------------------------------
Anglo Irish Bank Corp. PLC 720,430 18,998,077
- -------------------------------------------------------------------------------------------------
Banco Bilbao Vizcaya Argentaria S.A.^ 1,348,660 23,358,387
- -------------------------------------------------------------------------------------------------
BNP Paribas^ 393,770 28,594,859
- -------------------------------------------------------------------------------------------------
Credit Agricole S.A.^ 735,321 21,836,529
- -------------------------------------------------------------------------------------------------
DEPFA Bank PLC 627,820 10,307,925
- -------------------------------------------------------------------------------------------------
Erste Bank der Oesterreichischen Sparkassen AG 397,220 21,686,682
- -------------------------------------------------------------------------------------------------
Grupo Financiero Inbursa S.A. de C.V. 4,856,250 9,991,474
- -------------------------------------------------------------------------------------------------
Hana Bank 607,680 17,392,534
- -------------------------------------------------------------------------------------------------
Housing Development Finance Corp. Ltd. 876,780 15,624,489
- -------------------------------------------------------------------------------------------------
HSBC Holdings PLC 1,359,910 22,689,695
- -------------------------------------------------------------------------------------------------
Mitsubishi Tokyo Financial Group, Inc. 2,152 19,652,592
- -------------------------------------------------------------------------------------------------
OTP Bank Ltd., GDR 275,800 21,953,680
- -------------------------------------------------------------------------------------------------
Powszechna Kasa Oszczednosci Bank Polski S.A.* 1,057,540 10,075,579
- -------------------------------------------------------------------------------------------------
Royal Bank of Scotland Group PLC 1,117,341 38,294,450
- -------------------------------------------------------------------------------------------------
Shinsei Bank Ltd. 2,341,000 13,736,974
- -------------------------------------------------------------------------------------------------
Takefuji Corp. 421,810 30,081,697
- -------------------------------------------------------------------------------------------------
UBS AG^ 366,009 31,809,051
- -------------------------------------------------------------------------------------------------
UFJ Holdings, Inc. 2,336 12,924,980
- -------------------------------------------------------------------------------------------------
$401,801,679
- -------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 1.4%
- -------------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR 404,020 $26,039,089
- -------------------------------------------------------------------------------------------------
Business Services - 2.3%
- -------------------------------------------------------------------------------------------------
Manpower, Inc. 357,910 $15,640,667
- -------------------------------------------------------------------------------------------------
SOFTBANK CORP.^ 604,100 26,196,075
- -------------------------------------------------------------------------------------------------
$41,836,742
- -------------------------------------------------------------------------------------------------
Chemicals - 0.9%
- -------------------------------------------------------------------------------------------------
Syngenta AG 137,934 $15,456,687
- -------------------------------------------------------------------------------------------------
Construction - 3.4%
- -------------------------------------------------------------------------------------------------
Italcementi S.p.A. 414,460 $5,563,612
- -------------------------------------------------------------------------------------------------
Italcementi S.p.A. - Ordinary^ 251,730 4,456,626
- -------------------------------------------------------------------------------------------------
Sekisui Chemical Co. Ltd. 3,664,000 27,217,384
- -------------------------------------------------------------------------------------------------
Siam Cement Public Co. Ltd. 2,499,730 19,464,843
- -------------------------------------------------------------------------------------------------
Urbi Desarrollos Urbanos S.A. de C.V.* 891,610 4,616,205
- -------------------------------------------------------------------------------------------------
$61,318,670
- -------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.1%
- -------------------------------------------------------------------------------------------------
Reckitt Benckiser PLC 637,890 $20,108,904
- -------------------------------------------------------------------------------------------------
Electrical Equipment - 1.8%
- -------------------------------------------------------------------------------------------------
Schneider Electric S.A.^ 412,329 $32,947,766
- -------------------------------------------------------------------------------------------------
Electronics - 4.8%
- -------------------------------------------------------------------------------------------------
CANON, Inc. 1,000 $52,841
- -------------------------------------------------------------------------------------------------
Funai Electric Co. Ltd.^ 110,000 14,678,601
- -------------------------------------------------------------------------------------------------
Samsung Electronics Co. Ltd. 68,250 35,806,620
- -------------------------------------------------------------------------------------------------
Seiko Epson Corp. 892,300 35,191,461
- -------------------------------------------------------------------------------------------------
$85,729,523
- -------------------------------------------------------------------------------------------------
Energy - Independent - 2.6%
- -------------------------------------------------------------------------------------------------
CNOOC Ltd. 46,601,500 $27,038,138
- -------------------------------------------------------------------------------------------------
Thai Oil PLC 10,757,850 18,974,520
- -------------------------------------------------------------------------------------------------
$46,012,658
- -------------------------------------------------------------------------------------------------
Energy - Integrated - 5.5%
- -------------------------------------------------------------------------------------------------
LUKOIL, ADR 104,460 $14,598,285
- -------------------------------------------------------------------------------------------------
MOL Magyar Olaj-es Gazipari Rt., GDR 83,950 7,320,440
- -------------------------------------------------------------------------------------------------
Statoil A.S.A^ 1,435,660 26,096,386
- -------------------------------------------------------------------------------------------------
Total S.A.^ 214,740 51,022,064
- -------------------------------------------------------------------------------------------------
$99,037,175
- -------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 2.9%
- -------------------------------------------------------------------------------------------------
China Mengniu Dairy Co. Ltd.* 13,860,000 $10,485,123
- -------------------------------------------------------------------------------------------------
Nestle S.A. 152,098 42,249,444
- -------------------------------------------------------------------------------------------------
$52,734,567
- -------------------------------------------------------------------------------------------------
Insurance - 4.0%
- -------------------------------------------------------------------------------------------------
Aviva PLC 2,174,670 $27,087,388
- -------------------------------------------------------------------------------------------------
AXA^ 1,036,690 27,901,247
- -------------------------------------------------------------------------------------------------
Riunione Adriatica di Sicurta S.p.A.^ 753,950 17,504,166
- -------------------------------------------------------------------------------------------------
$72,492,801
- -------------------------------------------------------------------------------------------------
Leisure & Toys - 1.4%
- -------------------------------------------------------------------------------------------------
Nintendo Co. Ltd. 222,800 $24,740,152
- -------------------------------------------------------------------------------------------------
Machinery & Tools - 4.5%
- -------------------------------------------------------------------------------------------------
Hyundai Mobis 309,150 $20,866,471
- -------------------------------------------------------------------------------------------------
Mitsui Mining & Smelting Co. Ltd. 5,211,000 23,943,713
- -------------------------------------------------------------------------------------------------
Sandvik AB^ 837,250 36,507,638
- -------------------------------------------------------------------------------------------------
$81,317,822
- -------------------------------------------------------------------------------------------------
Medical Equipment - 0.6%
- -------------------------------------------------------------------------------------------------
Synthes, Inc. 86,770 $10,500,590
- -------------------------------------------------------------------------------------------------
Metals & Mining - 3.3%
- -------------------------------------------------------------------------------------------------
Aber Diamond Corp.+ 526,160 $17,619,012
- -------------------------------------------------------------------------------------------------
Anglo American PLC 745,190 18,578,291
- -------------------------------------------------------------------------------------------------
Companhia Vale do Rio Doce, ADR^ 647,550 22,664,250
- -------------------------------------------------------------------------------------------------
$58,861,553
- -------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 1.0%
- -------------------------------------------------------------------------------------------------
Tokyo Gas Co. Ltd.^ 4,314,390 $17,387,242
- -------------------------------------------------------------------------------------------------
Oil Services - 1.0%
- -------------------------------------------------------------------------------------------------
Tenaris S.A., ADR 262,620 $17,267,265
- -------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.1%
- -------------------------------------------------------------------------------------------------
AstraZeneca PLC 794,790 $31,318,793
- -------------------------------------------------------------------------------------------------
Chugai Pharmaceutical Co. Ltd. 956,610 13,992,247
- -------------------------------------------------------------------------------------------------
Roche Holdings AG^ 300,550 31,711,779
- -------------------------------------------------------------------------------------------------
Sanofi-Aventis^ 288,552 23,095,417
- -------------------------------------------------------------------------------------------------
Tanabe Seiyaku Co. Ltd. 1,610,000 18,879,529
- -------------------------------------------------------------------------------------------------
Yamanouchi Pharma Ltd.^ 269,100 9,556,895
- -------------------------------------------------------------------------------------------------
$128,554,660
- -------------------------------------------------------------------------------------------------
Printing & Publishing - 2.4%
- -------------------------------------------------------------------------------------------------
Reed Elsevier PLC 1,772,530 $18,040,905
- -------------------------------------------------------------------------------------------------
Yell Group PLC 2,863,950 26,052,825
- -------------------------------------------------------------------------------------------------
$44,093,730
- -------------------------------------------------------------------------------------------------
Real Estate - 1.0%
- -------------------------------------------------------------------------------------------------
Consorcio ARA S.A. de C.V.* 890,760 $3,304,458
- -------------------------------------------------------------------------------------------------
Hypo Real Estate Holding AG 350,290 14,343,363
- -------------------------------------------------------------------------------------------------
$17,647,821
- -------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.9%
- -------------------------------------------------------------------------------------------------
Asahi Glass Co. Ltd. 1,550,000 $17,092,806
- -------------------------------------------------------------------------------------------------
Kaneka Corp. 1,463,000 16,665,582
- -------------------------------------------------------------------------------------------------
$33,758,388
- -------------------------------------------------------------------------------------------------
Specialty Stores - 2.1%
- -------------------------------------------------------------------------------------------------
Grupo Elektra S.A. de C.V. 1,353,520 $11,699,795
- -------------------------------------------------------------------------------------------------
Kingfisher PLC 4,815,700 26,983,405
- -------------------------------------------------------------------------------------------------
$38,683,200
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.2%
- -------------------------------------------------------------------------------------------------
Vodafone Group PLC 15,121,000 $39,601,879
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.8%
- -------------------------------------------------------------------------------------------------
FastWeb S.p.A.^* 154,110 $8,219,804
- -------------------------------------------------------------------------------------------------
FastWeb S.p.A.* 152,710 450,259
- -------------------------------------------------------------------------------------------------
Nokia Oyj 1,122,460 18,265,603
- -------------------------------------------------------------------------------------------------
ZTE Corp.* 1,593,800 5,854,863
- -------------------------------------------------------------------------------------------------
$32,790,529
- -------------------------------------------------------------------------------------------------
Telephone Services - 6.0%
- -------------------------------------------------------------------------------------------------
Deutsche Telekom AG^ 1,336,960 $28,027,843
- -------------------------------------------------------------------------------------------------
Hanaro Telecom, Inc.* 2,873,015 9,366,973
- -------------------------------------------------------------------------------------------------
Royal KPN N.V.^ 1,799,560 17,432,051
- -------------------------------------------------------------------------------------------------
Singapore Telecommunications Ltd. 10,971,000 17,694,072
- -------------------------------------------------------------------------------------------------
Telefonica S.A. 1,908,350 35,150,994
- -------------------------------------------------------------------------------------------------
$107,671,933
- -------------------------------------------------------------------------------------------------
Tobacco - 1.2%
- -------------------------------------------------------------------------------------------------
Swedish Match AB^ 1,897,190 $22,485,791
- -------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.0%
- -------------------------------------------------------------------------------------------------
Suez S.A.^ 1,348,460 $36,542,324
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,524,558,035) $1,775,324,614
- -------------------------------------------------------------------------------------------------
Short-Term Obligation - 2.3%
- -------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -------------------------------------------------------------------------------------------------
General Electric Co., 2.6%, due 3/01/05,
at Amortized Cost $41,838,000 $41,838,000
- -------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 22.9%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost
and Net Asset Value 413,090,155 $413,090,155
- -------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,979,486,190) $2,230,252,769
- -------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (23.7)% (426,980,174)
- -------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,803,272,595
- -------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
+ Restricted security.
ADR = American Depository Receipt.
GDR = Global Depository Receipt.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- -------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/28/05
ASSETS
Investments, at value, including $394,978,939 of
securities on loan (identified cost, $1,979,486,190) $2,230,252,769
- -----------------------------------------------------------------------------------------------------
Cash 1,557
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 10,251,339
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 6,869,200
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 1,915,425
- -----------------------------------------------------------------------------------------------------
Other assets 17
- -----------------------------------------------------------------------------------------------------
Total assets $2,249,290,307
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $28,611,885
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 2,293,537
- -----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 413,090,155
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 126,222
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 159,134
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 46,773
- -----------------------------------------------------------------------------------------------------
Administrative fee 1,660
- -----------------------------------------------------------------------------------------------------
Program manager fee 23
- -----------------------------------------------------------------------------------------------------
Administrative service fee 26
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 1,688,297
- -----------------------------------------------------------------------------------------------------
Total liabilities $446,017,712
- -----------------------------------------------------------------------------------------------------
Net assets $1,803,272,595
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $1,467,705,746
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign
currencies (net of $1,323,656 deferred country tax) 249,479,502
- -----------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions 90,348,431
- -----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (4,261,084)
- -----------------------------------------------------------------------------------------------------
Net assets $1,803,272,595
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 110,842,819
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $840,238,153
- -----------------------------------------------------------------------------------------------------
Shares outstanding 51,773,160
- -----------------------------------------------------------------------------------------------------
Net asset value per share $16.23
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$16.23) $17.22
- -----------------------------------------------------------------------------------------------------
Class B shares
Net assets $142,846,784
- -----------------------------------------------------------------------------------------------------
Shares outstanding 9,115,593
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.67
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $100,211,763
- -----------------------------------------------------------------------------------------------------
Shares outstanding 6,412,177
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.63
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $680,856,811
- -----------------------------------------------------------------------------------------------------
Shares outstanding 41,115,786
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $16.56
- -----------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $36,664,851
- -----------------------------------------------------------------------------------------------------
Shares outstanding 2,272,277
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $16.14
- -----------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $1,262,642
- -----------------------------------------------------------------------------------------------------
Shares outstanding 78,669
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $16.05
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class 529A shares
Net assets $650,478
- -----------------------------------------------------------------------------------------------------
Shares outstanding 40,325
- -----------------------------------------------------------------------------------------------------
Net asset value per share $16.13
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$16.13) $17.11
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $151,932
- -----------------------------------------------------------------------------------------------------
Shares outstanding 9,769
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.55
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $389,181
- -----------------------------------------------------------------------------------------------------
Shares outstanding 25,063
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.53
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A
shares is reduced. A contingent deferred sales charge may be imposed on
redemptions of Class A, Class B, Class C, Class 529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
SIX MONTHS ENDED 2/28/05
NET INVESTMENT LOSS
Income
- -----------------------------------------------------------------------------------------------------
Dividends $7,362,017
- -----------------------------------------------------------------------------------------------------
Income on securities loaned 384,721
- -----------------------------------------------------------------------------------------------------
Interest 335,551
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (797,852)
- -----------------------------------------------------------------------------------------------------
Total investment income $7,284,437
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $6,468,763
- -----------------------------------------------------------------------------------------------------
Trustees" compensation 18,704
- -----------------------------------------------------------------------------------------------------
Shareholder servicing costs 1,018,836
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 1,215,174
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 642,401
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 429,855
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 68,616
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 1,560
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 794
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 676
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 1,589
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 567
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 169
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 397
- -----------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 780
- -----------------------------------------------------------------------------------------------------
Administrative fee 43,270
- -----------------------------------------------------------------------------------------------------
Custodian fee 767,437
- -----------------------------------------------------------------------------------------------------
Printing 124,046
- -----------------------------------------------------------------------------------------------------
Postage 15,992
- -----------------------------------------------------------------------------------------------------
Auditing fees 28,788
- -----------------------------------------------------------------------------------------------------
Legal fees 20,962
- -----------------------------------------------------------------------------------------------------
Miscellaneous 113,550
- -----------------------------------------------------------------------------------------------------
Reimbursement of expenses to investment adviser 404,637
- -----------------------------------------------------------------------------------------------------
Total expenses $11,387,563
- -----------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
Fees paid indirectly (28,213)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (1,830)
- -----------------------------------------------------------------------------------------------------
Net expenses $11,357,520
- -----------------------------------------------------------------------------------------------------
Net investment loss $(4,073,083)
- -----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $114,214,366
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions (259,189)
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions $113,955,177
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------
Investments (net of $1,323,656 deferred country tax) $158,908,456
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 70,929
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and
foreign currency translation $158,979,385
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $272,934,562
- -----------------------------------------------------------------------------------------------------
Change in net assets from operations $268,861,479
- -----------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/28/05 8/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $(4,073,083) $8,679,536
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 113,955,177 153,965,405
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 158,979,385 40,974,661
- ------------------------------------------------------------ ------------- ------------
Change in net assets from operations $268,861,479 $203,619,602
- ------------------------------------------------------------ ------------- ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -------------------------------------------------------------------------------------------------------
Class A $(3,826,893) $(259,483)
- -------------------------------------------------------------------------------------------------------
Class B (10,565) --
- -------------------------------------------------------------------------------------------------------
Class C (77,331) --
- -------------------------------------------------------------------------------------------------------
Class I (4,400,339) (782,661)
- -------------------------------------------------------------------------------------------------------
Class R1 (170,724) (13,715)
- -------------------------------------------------------------------------------------------------------
Class R2 (4,202) (13)
- -------------------------------------------------------------------------------------------------------
Class 529A (2,107) (122)
- -------------------------------------------------------------------------------------------------------
Class 529B (115) --
- -------------------------------------------------------------------------------------------------------
Class 529C (151) --
- -------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions
- -------------------------------------------------------------------------------------------------------
Class A (30,675,820) --
- -------------------------------------------------------------------------------------------------------
Class B (5,867,774) --
- -------------------------------------------------------------------------------------------------------
Class C (3,969,467) --
- -------------------------------------------------------------------------------------------------------
Class I (23,687,787) --
- -------------------------------------------------------------------------------------------------------
Class R1 (1,210,411) --
- -------------------------------------------------------------------------------------------------------
Class R2 (24,101) --
- -------------------------------------------------------------------------------------------------------
Class 529A (18,925) --
- -------------------------------------------------------------------------------------------------------
Class 529B (6,169) --
- -------------------------------------------------------------------------------------------------------
Class 529C (14,528) --
- ------------------------------------------------------------ ------------- ------------
Total distributions declared to shareholders $(73,967,409) $(1,055,994)
- ------------------------------------------------------------ ------------- ------------
Change in net assets from fund share transactions $333,126,978 $313,361,923
- ------------------------------------------------------------ ------------- ------------
Redemption fees $3,032 $19,901
- ------------------------------------------------------------ ------------- ------------
Total change in net assets $528,024,080 $515,945,432
- ------------------------------------------------------------ ------------- ------------
Statements of Changes in Net Assets - continued
SIX MONTHS ENDED YEAR ENDED
2/28/05 8/31/04
(UNAUDITED)
NET ASSETS
At beginning of period $1,275,248,515 $759,303,083
- -------------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions
in excess of net investment income of $4,261,084 and
accumulated undistributed net investment income of
$8,304,426) $1,803,272,595 $1,275,248,515
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the fund's operation). Certain information reflects financial
results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------------------------------------------
CLASS A 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of year $14.25 $11.53 $10.78 $12.25 $16.19 $12.47
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment income
(loss)(S) $(0.04) $0.10 $0.04 $(0.00)+++ $(0.00)+++ $0.30
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.78 2.63 0.71 (1.47) (3.44) 3.78
- ---------------------------------- ------- ------ ------ ------ ------ ------
Total from investment
operations $2.74 $2.73 $0.75 $(1.47) $(3.44) $4.08
- ---------------------------------- ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.08) $(0.01) $-- $-- $(0.09) $(0.02)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign
currency transactions (0.68) -- -- -- (0.34) (0.34)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- -- -- (0.00)+++ --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency
transactions -- -- -- -- (0.07) --
- ---------------------------------- ------- ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.76) $(0.01) $-- $-- $(0.50) $(0.36)
- ---------------------------------- ------- ------ ------ ------ ------ ------
Redemption fees added to paid-
in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ---------------------------------- ------- ------ ------ ------ ------ ------
Net asset value,
end of year $16.23 $14.25 $11.53 $10.78 $12.25 $16.19
- ---------------------------------- ------- ------ ------ ------ ------ ------
Total return (%)(+)& 19.57++ 23.65 6.96 (12.00) (21.76) 33.00
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ----------------------------------------------------------------------------
CLASS A (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.56+ 1.67 1.75 1.77 1.76 1.77
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.58)+ 0.75 0.36 (0.02) (0.02) 1.91
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 102 96 153 131 123
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year (000
Omitted) $840,238 $593,574 $387,732 $313,418 $240,231 $109,310
- -------------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and expenses,
such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of
average daily net assets. 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 terminated on December 31,
2004. Effective January 1, 2005, the fund entered into a similar expense arrangement without reimbursement. This new
arrangement will be in effect until December 31, 2005. In addition, effective June 7, 2004, the investment adviser has
voluntarily agreed to reimburse the fund for its proportional share of substantially all of Independent Chief Compliance
Officer service fees paid to Tarantino LLC. To the extent actual expenses were over (under) 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) $(0.04) $0.11 $0.03 $(0.01) $(0.01) $0.29
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.51+ 1.61 1.80 1.86 1.84 1.84
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.53)+ 0.81 0.31 (0.11) (0.10) 1.84
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense 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.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS B 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
year $13.76 $11.19 $10.54 $12.04 $15.98 $12.37
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment income
(loss)(S) $(0.09) $0.02 $(0.03) $(0.08) $(0.10) $0.18
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.68 2.55 0.68 (1.42) (3.39) 3.77
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total from investment
operations $2.59 $2.57 $0.65 $(1.50) $(3.49) $3.95
- ---------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.00)+++ $-- $-- $-- $(0.04) $--
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign
currency transactions (0.68) -- -- -- (0.34) (0.34)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- -- -- (0.00)+++ --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency transactions -- -- -- -- (0.07) --
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.68) $-- $-- $-- $(0.45) $(0.34)
- ---------------------------------- -------- ------ ------ ------ ------ ------
Redemption fees added to paid-
in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ---------------------------------- -------- ------ ------ ------ ------ ------
Net asset value,
end of year $15.67 $13.76 $11.19 $10.54 $12.04 $15.98
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total return (%)& 19.11++ 22.97 6.17 (12.46) (22.27) 32.14
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS B (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.21+ 2.31 2.40 2.42 2.41 2.42
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1.23)+ 0.12 (0.32) (0.69) (0.71) 1.19
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 102 96 153 131 123
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $142,847 $116,165 $88,177 $82,659 $82,135 $60,559
- -------------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and expenses,
such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of
average daily net assets. 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 terminated on December 31,
2004. Effective January 1, 2005, the fund entered into a similar expense arrangement without reimbursement. This new
arrangement will be in effect until December 31, 2005. In addition, effective June 7, 2004, the investment adviser has
voluntarily agreed to reimburse the fund for its proportional share of substantially all of Independent Chief Compliance
Officer service fees paid to Tarantino LLC. To the extent actual expenses were over (under) 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) $(0.09) $0.02 $(0.04) $(0.09) $(0.11) $0.17
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.16+ 2.25 2.45 2.51 2.49 2.49
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1.18)+ 0.18 (0.37) (0.78) (0.79) 1.12
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS C 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
year $13.73 $11.17 $10.52 $12.02 $15.97 $12.36
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment income
(loss)(S) $(0.09) $0.02 $(0.03) $(0.08) $(0.09) $0.19
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.68 2.54 0.68 (1.42) (3.40) 3.76
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total from investment
operations $2.59 $2.56 $0.65 $(1.50) $(3.49) $3.95
- ---------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.01) $-- $-- $-- $(0.05) $--
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign
currency transactions (0.68) -- -- -- (0.34) (0.34)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- -- -- (0.00)+++ --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency transactions -- -- -- -- (0.07) --
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.69) $-- $-- $-- $(0.46) $(0.34)
- ---------------------------------- -------- ------ ------ ------ ------ ------
Redemption fees added to paid-
in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ---------------------------------- -------- ------ ------ ------ ------ ------
Net asset value,
end of year $15.63 $13.73 $11.17 $10.52 $12.02 $15.97
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total return (%)& 19.17++ 22.92 6.18 (12.48) (22.27) 32.17
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS C (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.21+ 2.31 2.40 2.42 2.41 2.42
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1.23)+ 0.15 (0.32) (0.09) (0.10) 1.28
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 102 96 153 131 123
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $100,212 $75,580 $46,022 $43,046 $47,375 $31,126
- -------------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and expenses,
such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of
average daily net assets. 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 terminated on December 31,
2004. Effective January 1, 2005, the fund entered into a similar expense arrangement without reimbursement. This new
arrangement will be in effect until December 31, 2005. In addition, effective June 7, 2004, the investment adviser has
voluntarily agreed to reimburse the fund for its proportional share of substantially all of Independent Chief Compliance
Officer service fees paid to Tarantino LLC. To the extent actual expenses were over (under) 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) $(0.09) $0.03 $(0.04) $(0.09) $(0.10) $0.18
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.16+ 2.25 2.45 2.51 2.49 2.49
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1.18)+ 0.21 (0.37) (0.79) (0.78) 1.21
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS I 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of
year $14.54 $11.75 $10.95 $12.39 $16.33 $12.55
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment income
(loss)(S) $(0.02) $0.16 $0.10 $0.04 $0.03 $0.26
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.85 2.66 0.70 (1.48) (3.46) 3.90
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total from investment
operations $2.83 $2.82 $0.80 $(1.44) $(3.43) $4.16
- ---------------------------------- -------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.13) $(0.03) $-- $-- $(0.10) $(0.04)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign
currency transactions (0.68) -- -- -- (0.34) (0.34)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- -- -- (0.00)+++ --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments and
foreign currency transactions -- -- -- -- (0.07) --
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.81) $(0.03) $-- $-- $(0.51) $(0.38)
- ---------------------------------- -------- ------ ------ ------ ------ ------
Redemption fees added to paid-
in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ---------------------------------- -------- ------ ------ ------ ------ ------
Net asset value,
end of year $16.56 $14.54 $11.75 $10.95 $12.39 $16.33
- ---------------------------------- -------- ------ ------ ------ ------ ------
Total return (%)& 19.76++ 24.05 7.31 (11.62) (21.49) 33.61
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS I (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.21+ 1.32 1.40 1.42 1.41 1.42
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (0.23)+ 1.18 0.95 0.38 0.25 1.66
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 102 96 153 131 123
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $680,857 $469,181 $232,328 $18,207 $10,150 $10,398
- -------------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management and certain other fees and expenses, such that Other Expenses do
not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses during the fund's
fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of average daily net assets. 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 terminated on December 31, 2004. Effective January 1, 2005,
the fund entered into a similar expense arrangement without reimbursement. This new arrangement will be in effect until
December 31, 2005. In addition, effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund
for its proportional share of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC.
To the extent actual expenses were over (under) 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) $(0.01) $0.17 $0.10 $0.03 $0.02 $0.25
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.16+ 1.26 1.45 1.51 1.49 1.49
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.18)+ 1.24 0.90 0.29 0.17 1.59
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 2/28/05 8/31/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $14.20 $11.52 $10.32^
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.06) $0.09 $(0.01)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency 2.78 2.61 1.21
- ------------------------------------------------------------- -------- -------- -------
Total from investment operations $2.72 $2.70 $1.20
- ------------------------------------------------------------- -------- -------- -------
LESS DISBTIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.10) $(0.02) $--
- ----------------------------------------------------------------------------------------------------------------------
From net realized and unrealized gain on investments
and foreign currency transactions (0.68) -- --
- ------------------------------------------------------------- -------- -------- -------
Total distributions declared to shareholders $(0.78) $-- $--
- ------------------------------------------------------------- -------- -------- -------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $--
- ------------------------------------------------------------- -------- -------- -------
Net asset value, end of period $16.14 $14.20 $11.52
- ------------------------------------------------------------- -------- -------- -------
Total return (%)& 19.44++ 23.50 11.63++^
- ----------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 (CONTINUED) 2/28/05 8/31/04 8/31/03*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.71+ 1.81 1.90+
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.74)+ 0.69 (0.09)+
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 102 96
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of year (000 Omitted) $36,665 $19,596 $4,810
- ----------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and expenses,
such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of
average daily net assets. 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 terminated on December 31,
2004. Effective January 1, 2005, the fund entered into a similar expense arrangement without reimbursement. This new
arrangement will be in effect until December 31, 2005. In addition, effective June 7, 2004, the investment adviser has
voluntarily agreed to reimburse the fund for its proportional share of substantially all of Independent Chief Compliance
Officer service fees paid to Tarantino LLC. To the extent actual expenses were over (under) 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) $(0.05) $0.10 $(0.01)
- ----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.66+ 1.75 1.95+
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.69)+ 0.75 (0.14)+
- ----------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ The net asset value and total return previously reported as $10.38 and 10.98%, respectively, have been revised to reflect
the net asset value from the day prior to the class" inception date. The net asset value and total return previously
reported were from inception date, the date the share class was first available to public shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS PERIOD
ENDED ENDED
CLASS R2 2/28/05 8/31/04*
(UNAUDITED)
Net asset value, beginning of period $14.16 $12.71^
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.07) $0.02
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency 2.76 1.46
- --------------------------------------------------------------------------------- ------
Total from investment operations $2.69 $1.48
- --------------------------------------------------------------------------------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.12) $(0.03)
- -------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions (0.68) --
- ------------------------------------------------------------------------ ------- ------
Total distributions declared to shareholders $(0.80) $(0.03)
- ------------------------------------------------------------------------ ------- ------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++
- ------------------------------------------------------------------------ ------- ------
Net asset value, end of period $16.05 $14.16
- ------------------------------------------------------------------------ ------- ------
Total return (%)& 19.31++ 11.69++^
- -------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS PERIOD
ENDED ENDED
CLASS R2 (CONTINUED) 2/28/05 8/31/04*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.95+ 2.07+
- -------------------------------------------------------------------------------------------------------
Net investment income (1.03)+ 0.18+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 55 102
- -------------------------------------------------------------------------------------------------------
Net assets at end of year (000 Omitted) $1,263 $431
- -------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other
Expenses", which are defined as the fund's operating expenses, exclusive of management, distribution
and service, and certain other fees and expenses, such that Other Expenses do not exceed 0.40%
annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses during the
fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.65% of
average daily net assets. 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 terminated on December 31, 2004. Effective January 1, 2005, the fund
entered into a similar expense arrangement without reimbursement. This new arrangement will be in
effect until December 31, 2005. In addition, effective June 7, 2004, the investment adviser has
voluntarily agreed to reimburse the fund for its proportional share of substantially all of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. To the extent actual
expenses were over (under) 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) $(0.07) $0.02
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.90+ 2.01+
- -------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.98)+ 0.24+
- -------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
^ The net asset value and total return previously reported as $12.56 and 13.03%, respectively, have
been revised to reflect the net asset value from the day prior to the class" inception date. The net
asset value and total return previously reported were from inception date, the date the share class
was first available to public shareholders.
& From time to time the fund may receive proceeds from litigation settlements, without which
performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529A 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $14.18 $11.50 $10.78 $10.66
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.06) $0.08 $0.03 $(0.00)+++
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments and foreign currency 2.77 2.61 0.69 0.12
- -------------------------------------------------- -------- ---------- ---------- ----------
Total from investment operations $2.71 $2.69 $0.72 $0.12
- -------------------------------------------------- -------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.08) $(0.01) $-- $--
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions (0.68) -- -- --
- -------------------------------------------------- -------- ---------- ---------- ----------
Total distributions declared to shareholders $(0.76) $-- $-- $--
- -------------------------------------------------- -------- ---------- ---------- ----------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- -------------------------------------------------- -------- ---------- ---------- ----------
Net asset value, end of period $16.13 $14.18 $11.50 $10.78
- -------------------------------------------------- -------- ---------- ---------- ----------
Total return (%)(+)& 19.39++ 23.39 6.68 1.13++
- ---------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529A (CONTINUED) 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.80+ 1.91 2.00 2.02+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.86)+ 0.62 0.30 (0.20)+
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 102 96 153
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $650 $332 $112 $11
- ---------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are
defined as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and
expenses, such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the
fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater
than 0.65% of average daily net assets. 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
terminated on December 31, 2004. Effective January 1, 2005, the fund entered into a similar expense arrangement without
reimbursement. This new arrangement will be in effect until December 31, 2005. In addition, effective June 7, 2004, the
investment adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially all of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. To the extent actual expenses were over (under)
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) $(0.06) $0.09 $0.03 $(0.00)+++
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.75+ 1.85 2.05 2.11+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.81)+ 0.68 0.25 (0.29)+
- ---------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns do not include the applicable sales charge. If the charge had been included, the results would have been lower.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529B 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $13.68 $11.17 $10.54 $10.42
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.11) $(0.00)+++ $(0.05) $(0.00)+++
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments and foreign currency 2.67 2.51 0.68 0.12
- -------------------------------------------------- -------- ---------- ---------- ----------
Total from investment operations $2.56 $2.51 $0.63 $0.12
- -------------------------------------------------- -------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.01) $-- $-- $--
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions (0.68) -- -- --
- -------------------------------------------------- -------- ---------- ---------- ----------
Total distributions declared to shareholders $(0.69) $-- $-- $--
- -------------------------------------------------- -------- ---------- ---------- ----------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- -------------------------------------------------- -------- ---------- ---------- ----------
Net asset value, end of period $15.55 $13.68 $11.17 $10.54
- -------------------------------------------------- -------- ---------- ---------- ----------
Total return (%)& 19.01++ 22.47 5.98 1.15++
- ---------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529B (CONTINUED) 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.46+ 2.56 2.65 2.67+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.48)+ (0.03) (0.43) (0.45)+
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 102 96 153
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $152 $110 $41 $5
- ---------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are
defined as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and
expenses, such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the
fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater
than 0.65% of average daily net assets. 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
terminated on December 31, 2004. Effective January 1, 2005, the fund entered into a similar expense arrangement without
reimbursement. This new arrangement will be in effect until December 31, 2005. In addition, effective June 7, 2004, the
investment adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially all of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. To the extent actual expenses were over (under)
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) $(0.10) $0.00+++ $(0.05) $(0.00)+++
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.41+ 2.50 2.70 2.76+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1.43)+ 0.03 (0.48) (0.54)+
- ---------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529C 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $13.66 $11.14 $10.52 $10.40
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.11) $(0.00)+++ $(0.04) $(0.00)+++
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments and foreign currency 2.67 2.52 0.66 0.12
- -------------------------------------------------- -------- ---------- ---------- ----------
Total from investment operations $2.56 $2.52 $0.62 $0.12
- -------------------------------------------------- -------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.01) $-- $-- $--
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions (0.68) -- -- --
- -------------------------------------------------- -------- ---------- ---------- ----------
Total distributions declared to shareholders $(0.69) $-- $-- $--
- -------------------------------------------------- -------- ---------- ---------- ----------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- -------------------------------------------------- -------- ---------- ---------- ----------
Net asset value, end of period $15.53 $13.66 $11.14 $10.52
- -------------------------------------------------- -------- ---------- ---------- ----------
Total return (%)& 19.00++ 22.62 5.89 1.15++
- ---------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
CLASS 529C (CONTINUED) 2/28/05 8/31/04 8/31/03 8/31/02*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.46+ 2.55 2.65 2.67+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.48)+ (0.02) (0.36) (0.45)+
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 55 102 96 153
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000 Omitted) $389 $280 $81 $5
- ---------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are
defined as the fund's operating expenses, exclusive of management, distribution and service, and certain other fees and
expenses, such that Other Expenses do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the
fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater
than 0.65% of average daily net assets. 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
terminated on December 31, 2004. Effective January 1, 2005, the fund entered into a similar expense arrangement without
reimbursement. This new arrangement will be in effect until December 31, 2005. In addition, effective June 7, 2004, the
investment adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially all of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. To the extent actual expenses were over (under)
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) $(0.10) $0.01 $(0.04) $(0.00)+++
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.41+ 2.49 2.70 2.76+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1.43)+ 0.04 (0.41) (0.54)+
- ---------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Research International Fund (the fund) is a diversified series of MFS
Series Trust I (the trust). The trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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. Money market mutual funds are valued at net asset value. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. 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.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the fund with indemnification against Borrower default. The
fund bears the risk of loss with respect to the investment of cash collateral.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or short-term securities. A portion of the income generated upon
investment of the collateral is remitted to the Borrowers, and the remainder
is allocated between the fund and the lending agent. On loans collateralized
by U.S. Treasury securities, a fee is received from the Borrower, and is
allocated between the fund and the lending agent. Income from securities
lending is included in interest income on the Statement of Operations. The
dividend and interest income earned on the securities loaned is accounted for
in the same manner as other dividend and interest income.
SHORT TERM FEES - For purchases made prior to July 1, 2004, the fund charges 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 30 calendar
days following their acquisition (either by purchase or exchange). For purchases
made on or after July 1, 2004 and before April 1, 2005, the fund will charge a
2% redemption fee on proceeds from Class A, Class B, Class C, and Class I shares
redeemed or exchanged within 5 business days following their acquisition. Due to
systems limitations associated with the transition from applying a 30 calendar
day redemption fee to a 5 business day redemption fee, the fund will not impose
redemption fees with respect to purchases made in June 2004 followed by
redemptions made in July 2004. Effective April 1, 2005, the fund will no longer
charge a redemption fee. See the fund's prospectus for details. Any redemption
fees charged 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. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss in
the Statement of Operations, or in unrealized gain/loss if the security is still
held by the fund.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. During the six months ended February 28, 2005, the fund's custodian fees
were reduced by $20,968 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the fund
a portion of the commissions generated, to offset certain expenses of the fund.
For the six months ended February 28, 2005, the fund's miscellaneous expenses
were reduced by $7,245 under this agreement. These amounts are shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, wash sales and capital losses.
The tax character of distributions declared for the years ended August 31, 2004
and August 31, 2003 was as follows:
8/31/04 8/31/03
Distributions declared from:
---------------------------------------------------------------
Ordinary income $1,055,994 $--
---------------------------------------------------------------
As of August 31, 2004, the components of, distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $8,490,880
----------------------------------------------------------
Undistributed long-term capital gain 43,157,446
----------------------------------------------------------
Unrealized appreciation 89,210,907
----------------------------------------------------------
Other temporary differences (186,454)
----------------------------------------------------------
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 the following annual
rates:
First $1.0 billion of average net assets 0.90%
----------------------------------------------------------
Next $1.0 billion of average net assets 0.80%
----------------------------------------------------------
Average net assets in excess of $2.0 billion 0.70%
----------------------------------------------------------
Management fees incurred for the six months ended February 28, 2005, were an
effective rate of 0.87% of average daily net assets on an annualized basis.
MFS has contractually agreed, subject to reimbursement, to bear a portion of
the fund's "other expenses", which are defined as the fund's operating
expenses, exclusive of management, distribution and service, and certain other
fees and expenses, such that other expenses do not exceed 0.40% annually. This
arrangement is effected by MFS bearing all of the fund's other expenses during
the fund's fiscal year and the fund paying MFS an expense reimbursement fee
not greater than 0.40% of average daily net assets for Class A, Class B, Class
C, Class I, and Class R1 and not greater than 0.65% of average daily net
assets for Class 529A, Class 529B, Class 529C, and Class R2. To the extent
that the expense reimbursement fee exceeds the fund's actual expenses, the
excess will be applied to unreimbursed amounts paid by MFS under the current
agreement. This agreement terminated on December 31, 2004. The fund will not
be required to reimburse MFS the $175,232 for expenses borne under this
agreement. Effective January 1, 2005, the fund entered into a similar expense
arrangement without reimbursement. This new arrangement will be in effect
until December 31, 2005.
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). The fund has an
unfunded defined benefit plan for retired Independent Trustees and an unfunded
retirement benefit deferral plan for current Independent Trustees. Included in
Trustees" compensation is $2,127 as a result of the change in the fund's
unfunded retirement benefit deferral plan for certain current Independent
Trustees and a pension expense of $294 for retired Independent Trustees for
the six months ended February 28, 2005.
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. On July 28,
2004, the fund accrued an estimate of the amount to be received pursuant to this
matter in the amount of $8,010, which 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. The proceeds were paid to the fund on February 16, 2005.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. 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. The fund
paid MFS an administrative fee up to the following annual percentage rates of
the fund's average daily net assets:
BEGINNING OF
PERIOD THROUGH
EFFECTIVE DATE 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
- -------------------------------------------------------------------------
Next $2.5 billion 0.00832% 0.01206%
- -------------------------------------------------------------------------
Next $2.5 billion 0.00032% 0.00056%
- -------------------------------------------------------------------------
In excess of $7 billion 0.00000% 0.00000%
- -------------------------------------------------------------------------
The March 1, 2005 rates were not effective during the current reporting
period. For the six months ended February 28, 2005, the fund paid MFS $43,270,
equivalent to 0.0058% 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 $59,928 and $764 for the six months ended February 28, 2005, 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 as compensation for services provided by MFD and financial
intermediaries in connection with the distribution and servicing of its
shares. One component of the plan is a distribution fee and another is a
service fee paid by MFD to financial intermediaries that enter into sales or
service agreements with MFD or its affiliates based on the average daily net
assets of accounts attributable to such intermediaries. 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 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00%
- --------------------------------------------------------------------------------
MFD may retain all or a portion of the service fee, including for accounts for
which there is no financial intermediary of record. Service fees retained by
MFD for the six months ended February 28, 2005 amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $18,163 $517 $433 $-- $15
- --------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by
MFD $99 $8 $35
- --------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February
28, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual
Percentage Rates 0.35% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Effective Annual
Percentage Rates 0.35% 1.00% 1.00%
- --------------------------------------------------------------------------------
Payment of the 0.15% per annum portion of the Class 529A distribution fee that
is not currently being charged will be implemented on such 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 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 of purchase. MFD receives
all contingent deferred sales charges. Contingent deferred sales charges
imposed during the six months ended February 28, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred Sales
Charges Imposed $3,012 $83,622 $5,558 $-- $--
- --------------------------------------------------------------------------------
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. For the period July 1, 2004 through December 31, 2004,
the fund was charged up to 0.0861% of its average daily net assets. For the
period January 1, 2005 through February 28, 2005, the fund is charged up to
0.1035% of its average daily net assets. For the six months ended February 28,
2005, the fund paid MFSC a fee of $649,578 for shareholder services which
equated to 0.0870% of the fund's average daily net assets. Effective March 1,
2005, the fund is charged up to 0.1159% of its average daily net assets.
Shareholder service costs include out of pocket expenses and sub accounting
services expenses paid by MFSC on behalf of the fund and subsequently
reimbursed to MFSC which amounted to $239,576, and other costs paid by the
fund directly to unaffiliated vendors for the six months ended February 28,
2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,076,288,916 and $813,403,590, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $1,980,775,399
----------------------------------------------------------
Gross unrealized appreciation $255,422,694
----------------------------------------------------------
Gross unrealized depreciation (5,945,324)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $249,477,370
----------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 14,935,055 $230,895,932 25,499,429 $340,976,897
- --------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1,587,891 24,278,859 14,847 197,567
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (6,394,436) (97,853,166) (17,498,280) (239,404,354)
- --------------------------------------------------------------------------------------------------------------
Net change 10,128,510 $157,321,625 8,015,996 $101,770,110
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,381,541 $20,453,434 2,527,350 $33,384,413
- --------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 340,606 5,034,159 -- --
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (1,051,634) (15,616,033) (1,959,753) (25,909,743)
- --------------------------------------------------------------------------------------------------------------
Net change 670,513 $9,871,560 567,597 $7,474,670
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,278,152 $18,963,199 2,467,171 $32,082,699
- --------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 208,298 3,070,313 -- --
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (578,791) (8,528,965) (1,081,531) (14,358,259)
- --------------------------------------------------------------------------------------------------------------
Net change 907,659 $13,504,547 1,385,640 $17,724,440
- --------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 9,605,150 $151,019,519 14,828,774 $204,201,804
- --------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1,781,511 27,773,751 57,562 771,329
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (2,534,558) (41,005,482) (2,402,041) (32,740,066)
- --------------------------------------------------------------------------------------------------------------
Net change 8,852,103 $137,787,788 12,484,295 $172,233,067
- --------------------------------------------------------------------------------------------------------------
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 1,072,266 $16,274,342 1,482,311 $20,401,641
- --------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 86,917 1,321,144 1,036 13,608
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (267,384) (4,053,563) (520,404) (7,092,308)
- --------------------------------------------------------------------------------------------------------------
Net change 891,799 $13,541,923 962,943 $13,322,941
- --------------------------------------------------------------------------------------------------------------
CLASS R2 SHARES
Shares sold 55,376 $852,924 53,628 $745,402
- --------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1,871 28,303 -- --
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (9,013) (134,454) (23,193) (321,470)
- --------------------------------------------------------------------------------------------------------------
Net change 48,234 $746,773 30,435 $423,932
- --------------------------------------------------------------------------------------------------------------
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 17,454 $269,615 14,375 $195,143
- --------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1,384 21,032 9 122
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (1,921) (29,798) (767) (10,500)
- --------------------------------------------------------------------------------------------------------------
Net change 16,917 $260,849 13,617 $184,765
- --------------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 2,040 $29,111 5,351 $69,686
- --------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 428 6,284 -- --
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (735) (10,980) (988) (13,139)
- --------------------------------------------------------------------------------------------------------------
Net change 1,733 $24,415 4,363 $56,547
- --------------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 4,057 $60,478 14,470 $187,605
- --------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1,002 14,680 -- --
- --------------------------------------------------------------------------------------------------------------
Shares reacquired (515) (7,660) (1,192) (16,154)
- --------------------------------------------------------------------------------------------------------------
Net change 4,544 $67,498 13,278 $171,451
- --------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
The fund is one of several MFS mutual funds in which the MFS Asset Allocation
Funds may invest. The MFS Asset Allocation Funds do not invest in the underlying
MFS funds for the purpose of exercising management or control. At the end of the
period, the MFS Aggressive Growth Allocation Fund, MFS Conservative Allocation
Fund, MFS Growth Allocation Fund, MFS Moderate Allocation Fund, and MFS
International Diversification Fund were the owners of record of approximately
3.6%, 1.5%, 12.2%, 8.3% and 4.1%, respectively, of the total outstanding shares.
(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 six months ended February 28, 2005 was $5,409,
and is included in miscellaneous expense. The fund had no significant
borrowings during the six months ended February 28, 2005.
(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. 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 intermediaries who support
the sale of MFS fund shares. 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. The final distribution plan was approved by the SEC on January
21, 2005 and the affected MFS funds received the payment on February 16, 2005.
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 open-end retail fund ("MFS
retail funds") 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 they
prohibited market timing, MFS did not limit trading activity in 11 domestic
large cap stock, high grade bond and money market retail funds. MFS" former
Chief Executive Officer and former President 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. These individuals 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, MFS Fund Distributors, Inc., MFS Service Center, Inc.,
MFS Corporation Retirement Committee, Sun Life Financial Inc., various MFS
funds, certain current and/or former 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 ERISA actions by
participants in certain retirement plan accounts on behalf of those 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, Allianz Dresdner), No. 1:04-md-15863
(transfer began March 19, 2004)). The market timing cases related to the MFS
complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM (direct), Hammerslough
v. MFS et al., Case No. 04-md-01620 (derivative) and Anita Walker v. MFS et al.,
Case No. 1:04-CV-01758 (ERISA). The plaintiffs in these consolidated lawsuits
generally seek injunctive relief including removal of the named Trustees,
adviser and distributor, rescission of contracts and 12b-1 Plans, disgorgement
of fees and profits, monetary damages, punitive damages, attorney's fees and
costs and other equitable and declaratory relief. Two 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) (a consolidated action) and
Marcus Dumond, et al. v. Massachusetts Financial Servs. Co., et al., No.
04cv11458 (GAO)). The plaintiffs in these lawsuits generally seek compensatory
damages, punitive damages, recovery of fees, rescission of contracts, an
accounting, restitution, declaratory relief, equitable and/or injunctive relief
and attorney's fees and costs. The various 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 (ii) received excessive
compensation as fiduciaries to the MFS funds, or (iii) 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. 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 certain 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 distributed $50 million 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.
- -------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
- -------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
- ------------------------------------------------------------------------------
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.
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.
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
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
RIF-SEM-04/05 94M
MFS(R) TECHNOLOGY FUND 2/28/05
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
SEMIANNUAL REPORT
LETTER FROM THE CEO 1
------------------------------------------------------
PORTFOLIO COMPOSITION 4
------------------------------------------------------
MANAGEMENT REVIEW 5
------------------------------------------------------
PERFORMANCE SUMMARY 7
------------------------------------------------------
EXPENSE TABLE 12
------------------------------------------------------
PORTFOLIO OF INVESTMENTS 14
------------------------------------------------------
FINANCIAL STATEMENTS 17
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 34
------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 46
------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 46
------------------------------------------------------
CONTACT INFORMATION BACK COVER
------------------------------------------------------
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Last summer and fall, I wrote to you about enhancements that MFS(R) was making
to its investment process. Our goal, as always, was to deliver strong
performance across all asset classes. I am now happy to report to you that 2004
was a very successful year for MFS, relative to our peers in the mutual fund
industry. While there will always be room for improvement, we believe the
enhancements we have made to our investment process resulted in significantly
improved performance across the MFS Family of Funds(R).
You may remember some of the enhancements I outlined last year.
They included
o increasing collaboration and information sharing among our investment
personnel across asset classes, through an Investment Management Committee
with members from our Domestic Equity, International Equity, Fixed Income,
and Quantitative Research teams
o increasing the number of analysts supporting our portfolio managers and
doubling the average investment experience of our domestic equity analyst
staff
o making additional use of our most-seasoned portfolio managers to mentor
research analysts
o combining more quantitative, top-down risk control and security analysis
with our traditional bottom-up research process
o opening a research office in Mexico City to complement our existing staff
in Boston, London, Singapore, and Tokyo
The effect of these enhancements, I believe, is evident in the 2004 performance
of our funds. For the 12 months ended December 31, 2004, 80% of MFS domestic
equity funds, 100% of MFS international equity funds, and 80% of MFS fixed-
income funds delivered results in the top half of their Lipper peer groups.
Our longer-term performance also benefited from our ongoing commitment to the
MFS Original Research(R) process: more than 75% of MFS funds were in the top
half of their respective Lipper categories over the 3-, 5-, and 10-year periods
ended December 31, 2004.
Of course, I cannot offer any guarantees that our performance will repeat
itself. Still, I am confident that the recent enhancements to our investment
process will continue to benefit shareholders in 2005 and beyond.
What I can tell you with certainty is that the way you manage your investments
will determine how well you take advantage of the performance that financial
markets deliver. Historically, individual investors have tended to underperform
the markets. For example, a 2003 study by DALBAR, Inc. showed that over the
nearly two decades from 1984 through 2002, the average U.S. stock investor
earned a 2.6% average annual return at a time when U.S. stocks, as measured by
the Standard & Poor's 500 Stock Index, delivered a 12.2% average annual
return.(1)
This huge discrepancy, in our view, occurred because nonprofessional investors
generally did not adhere to the basic principles followed by most professional
investors: allocate among asset classes, diversify within each asset class, and
rebalance one's portfolio on a routine schedule. I elaborated on this "ADR"
theme in fund reports over the last few months of 2004. For more information on
how to apply a Disciplined Diversification(SM) strategy to your portfolio using
the principles of ADR, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Web site, MFS.COM.
As always, we appreciate your confidence in MFS, and you can be sure of our
continued commitment to do the best we can to help you pursue your long-term
financial goals.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management
April 15, 2005
It is not possible to invest directly in an index.
Lipper rankings and performance are based on historical average annual returns
of Class A shares, and do not include any sales charges. Past performance is no
guarantee of future results.
Asset allocation and diversification cannot guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
(1) Source: DALBAR July 2003 update to its Quantitative Analysis of Investment
Behavior; DALBAR, Inc., is a financial-services market research firm
headquartered in Boston, MA.
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
PORTFOLIO STRUCTURE
Stocks 99.7%
Cash & Other Net Assets 0.3%
TOP TEN HOLDINGS
Dell, Inc. 6.0%
------------------------------------------------
Cisco Systems, Inc. 5.9%
------------------------------------------------
Oracle Corp. 5.8%
------------------------------------------------
Intel Corp. 3.7%
------------------------------------------------
Texas Instruments, Inc. 3.7%
------------------------------------------------
QUALCOMM, Inc. 3.6%
------------------------------------------------
Microsoft Corp. 3.4%
------------------------------------------------
Apple Computer, Inc. 3.3%
------------------------------------------------
Accenture Ltd. 2.7%
------------------------------------------------
Amdocs Ltd. 2.7%
------------------------------------------------
TOP FIVE EQUITY INDUSTRIES
Electronics 27.0%
------------------------------------------------
Computer Software 23.1%
------------------------------------------------
Network & Telecommunications 14.8%
------------------------------------------------
Computer Systems 11.0%
------------------------------------------------
Business Services 9.0%
------------------------------------------------
Percentages are based on net assets as of 2/28/05.
The portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
SUMMARY OF RESULTS
For the six months ended February 28, 2005, Class A shares of the MFS
Technology Fund provided a total return of 11.95%, not including sales charges.
In comparison, the fund's benchmark, the Goldman Sachs Technology Industry
Composite Index, returned 11.13%. The fund's investment objective is capital
appreciation. The fund invests, under normal market conditions, at least 80% of
its net assets in common stocks and related securities, such as preferred
stock, convertible securities and depositary receipts, of companies that MFS
believes have above average growth potential and will benefit from
technological advances and improvements.
MARKET ENVIRONMENT
Over the period, many measures of global economic growth, including employment
and corporate spending, continued to improve, although we feel that high oil
prices, rising short-term interest rates in the United States, a decline in the
value of the U.S. dollar against most major currencies, and geopolitical
uncertainty impacted markets. But, oil prices pulled back from their record
levels toward the end of 2004 and, in our view, investors seemed to turn their
attention to strong corporate profits and economic growth.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the computer software and computer systems industries was
the primary contributor to performance relative to the fund's benchmark, the
Goldman Sachs Technology Industry Composite Index.
Among computer software holdings, Amdocs, MicroStrategy, and Microsoft were
among the fund's top contributors. In the computer systems industry, our
overweighted position in Apple Computer, which had a dramatic run-up in price
over the period, yielded the largest individual contribution to relative
performance.
Stocks in other industries that had a positive impact on relative performance
included broadband communications equipment manufacturer Marvell Technology,
Internet professional services firm Digitas*, and Internet traffic management
solutions provider F5 Networks*.
DETRACTORS FROM PERFORMANCE
Stock selection in the personal computers and peripherals, and the leisure and
toys industries was the primary detractor from relative performance.
In the personal computers and peripherals industry, computer printer
manufacturer Lexmark International and data storage provider EMC held back
relative results for the period. No holdings within the leisure and toys
industry were among the fund's top detractors.
Among our electronics holdings, Integrated Circuit Systems, Advanced Micro
Devices*, and Seiko Epson hurt relative results. Stocks in other industries
that were among the top detractors included online auctioneer eBay, Hewlett-
Packard*, business services firm Accenture, and digital data services company
Adtran International Group.*
Respectfully,
/s/ Telis Bertsekas
Telis Bertsekas
Portfolio Manager
* Security was not held in the portfolio at period-end.
Note to Shareholders: Telis Bertsekas took over as the portfolio manager of the
fund on March 5, 2005. He replaced Daniel Scherman.
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.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/28/05
- -------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including the reinvestment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR I SHARES, CALL 1-888-808-6374.) 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. HIGH
SHORT-TERM RETURNS FOR ANY PERIOD MAY BE AND LIKELY WERE ATTRIBUTABLE TO
FAVORABLE MARKET CONDITIONS DURING THAT PERIOD, WHICH MAY NOT BE REPEATABLE.
THE PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/97 11.95% -7.51% -2.04% -18.02% 2.42%
- ------------------------------------------------------------------------------
B 4/14/00 11.47% -8.23% -2.64% -18.55% 2.01%
- ------------------------------------------------------------------------------
C 4/14/00 11.63% -8.14% -2.68% -18.57% 2.00%
- ------------------------------------------------------------------------------
I 1/02/97 11.97% -7.38% -1.72% -17.68% 2.68%
- ------------------------------------------------------------------------------
R1** 12/31/02 11.73% -7.75% -2.23% -18.11% 2.35%
- ------------------------------------------------------------------------------
R2** 10/31/03 11.62% -7.97% -2.23% -18.11% 2.35%
- ------------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks
- ------------------------------------------------------------------------------
Goldman Sachs Technology
Industry Composite Index# 11.13% -5.35% 0.82% -18.69% 5.55%
- ------------------------------------------------------------------------------
Average science and
technology fund+ 14.01% -5.87% 0.80% -21.18% 5.09%
- ------------------------------------------------------------------------------
- --------------------
Average annual
with sales charge
- --------------------
Share class 6-mo 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 5.51% -12.83% -3.96% -18.98% 1.68%
- ------------------------------------------------------------------------------
B 7.47% -11.90% -3.63% -18.87% 2.01%
- ------------------------------------------------------------------------------
C 10.63% -9.06% -2.68% -18.57% 2.00%
- ------------------------------------------------------------------------------
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 11.95% -7.51% -6.00% -62.96% 21.58%
- ------------------------------------------------------------------------------
B 11.47% -8.23% -7.73% -64.16% 17.66%
- ------------------------------------------------------------------------------
C 11.63% -8.14% -7.84% -64.19% 17.55%
- ------------------------------------------------------------------------------
I 11.97% -7.38% -5.08% -62.21% 24.10%
- ------------------------------------------------------------------------------
R1** 11.73% -7.75% -6.54% -63.18% 20.88%
- ------------------------------------------------------------------------------
R2** 11.62% -7.97% -6.55% -63.18% 20.87%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
January 2, 1997,
through February 28, 2005. Index information is from January 2, 1997.
** Effective April 1, 2005, Class R1 shares have been renamed "Class R
shares", and Class R2 shares have been renamed "Class R3 shares". In
addition, on April 1, 2005, the fund launched the following new R share
classes: R1, R2, R4, and R5. All references herein to Class R1 and Class R2
shares are as of February 28, 2005 and do not reflect the renaming of Class
R1 and Class R2 shares.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Bloomberg L.P.
INDEX DEFINITION
Goldman Sachs Technology Industry Composite Index - is a modified
capitalization-weighted index of selected technology stocks.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results including sales charge reflect the deduction of the maximum
5.75% sales charge. Class B results including sales charge reflect the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results including sales charge
(assuming redemption within one year from the end of the prior month of
purchase) reflect the deduction of the 1% CDSC. Class I shares have no sales
charges and are available only to certain investors. Class R1 and R2 shares
have no sales charges and are available only to certain retirement plans.
Performance for share classes offered after Class A shares includes the
performance of the fund's Class A shares for periods prior to their offering.
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 share class to which it
is blended, and lower performance for share classes with lower operating
expenses than the 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.
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. The
proceeds were paid to the fund on February 16, 2005.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
Market risk is the risk that the price of a security held by the fund will fall
due to changing economic, political or market conditions or disappointing
earnings results.
Technology Companies Risks:
Company Risk: Companies in the technology industry face special risks. For
example, their products may fall out of favor or become obsolete in
relatively short periods of time. Also, many of their products may not
become commercially successful. Therefore, investments in the stocks of
technology companies can be volatile.
Concentration Risk: The fund's investment performance will be closely tied
to the performance of companies in a limited number of industries.
Companies in a single industry often are faced with the same obstacles,
issues and regulatory burdens, and their securities may react similarly
and more in unison to these or other market conditions. These price
movements may have a larger impact on the fund than on a fund with a more
broadly diversified portfolio.
The fund may participate in the initial public offering ("IPO") market, and a
significant portion of the fund's returns may be attributable to its investment
in IPO's which may have a magnified investment performance impact during the
periods when the fund has a small asset base. Like any past performance, there
is no assurance that, as the fund's assets grow, it will continue to experience
substantially similar performance by investment in IPOs.
Investments in emerging growth and growth companies may be subject to more
abrupt or erratic market movements and may involve greater risks than
investments in other companies. In addition, emerging growth companies often:
o have limited product lines, markets and and financial resources
o are dependent on management by one or a few key individuals
o have shares which suffer steeper than average price declines after
disappointing earnings reports and are more difficult to sell at
satisfactory prices
Investments in small cap companies tend to involve more risk and be more
volatile than investments in larger companies. Small cap companies may be more
susceptible to market declines because of their limited product lines,
financial and management resources, markets and distribution channels. Their
shares may be more difficult to sell at satisfactory prices during market
declines.
Over-the-counter (OTC) transactions involve risks in addition to those incurred
by transactions in securities traded on exchanges. OTC-listed companies may
have limited product lines, markets or financial resources. Many OTC stocks
trade less frequently and in smaller volume than exchange-listed stocks. The
values of these stocks may be more volatile than exchange-listed stocks, and
the fund may experience difficulty in buying and selling these securities at
prevailing market prices.
The fund will suffer a loss if it establishes a short position and the value of
the underlying security or index rises rather than falls. Because the fund must
cover its short position subject to prevailing market rates, the potential loss
is unlimited.
Investing in foreign securities involves risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject:
Emerging markets are generally defined as countries in the initial stages of
their industrialization cycles with low per capita income. The markets of
emerging markets countries are generally more volatile than the markets of
developed countries with more mature economies. All of the risks of investing
in foreign securities described above are heightened when investing in emerging
markets countries.
The portfolio can invest in fixed income securities, which will decline when
interest rates rise and will increase when interest rates fall. Many fixed
income securities also involve credit risk, which is the risk that issuers may
fail to make timely principal or interest payments. In addition, fixed income
securities with longer maturity dates will be subject to greater price
fluctuations than those with shorter maturity periods.
Because the fund may invest a relatively large percentage of its assets in a
single issuer as compared to other funds managed by MFS, the fund's performance
may be particularly sensitive to changes in the value of securities of these
issuers.
The fund has engaged and may engage in active and frequent trading to achieve
its principal investment strategies. This may result in the realization and
distribution to shareholders of higher capital gains, as compared to a fund
with less active trading policies, which would increase your tax liability
unless you hold your shares through a tax-deferred or exempt vehicle (such as
an Individual Retirement Account (IRA)). Frequent trading also increases
transaction costs, which could detract from the fund's performance.
Please see the prospectus for further information regarding these and other
risk considerations.
- -------------------------------------------------------------------------------
EXPENSE TABLE
- -------------------------------------------------------------------------------
FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM
SEPTEMBER 1, 2004, THROUGH FEBRUARY 28, 2005.
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, September 1, 2004 through February
28, 2005.
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
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 9/01/04-
Ratio 9/01/04 2/28/05 2/28/05
- --------------------------------------------------------------------------------
Actual 1.50% $1,000 $1,120 $7.88
A ------------------------------------------------------------------------
Hypothetical* 1.50% $1,000 $1,017 $7.50
- --------------------------------------------------------------------------------
Actual 2.15% $1,000 $1,115 $11.27
B -------------------------------------------------------------------------
Hypothetical* 2.15% $1,000 $1,014 $10.74
- --------------------------------------------------------------------------------
Actual 2.15% $1,000 $1,116 $11.28
C ------------------------------------------------------------------------
Hypothetical* 2.15% $1,000 $1,014 $10.74
- --------------------------------------------------------------------------------
Actual 1.14% $1,000 $1,120 $5.99
I ------------------------------------------------------------------------
Hypothetical 1.14% $1,000 $1,019 $5.71
- --------------------------------------------------------------------------------
Actual 1.65% $1,000 $1,117 $8.66
R1 ------------------------------------------------------------------------
Hypothetical 1.65% $1,000 $1,017 $8.25
- --------------------------------------------------------------------------------
Actual 1.90% $1,000 $1,116 $9.97
R2 ------------------------------------------------------------------------
Hypothetical 1.90% $1,000 $1,015 $9.49
- --------------------------------------------------------------------------------
* 5% class return per year before expenses.
** 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 (unaudited) - 2/28/05
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 99.7%
- ----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------
Business Services - 9.0%
- ----------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 151,970 $3,882,833
- ----------------------------------------------------------------------------------------------
Alliance Data Systems Corp.* 71,150 2,806,867
- ----------------------------------------------------------------------------------------------
CACI International, Inc., "A"* 15,470 834,761
- ----------------------------------------------------------------------------------------------
DST Systems, Inc.* 27,630 1,312,149
- ----------------------------------------------------------------------------------------------
Fiserv, Inc.* 14,740 559,236
- ----------------------------------------------------------------------------------------------
Getty Images, Inc.* 20,500 1,462,470
- ----------------------------------------------------------------------------------------------
Hewitt Associates, Inc., "A"* 44,400 1,364,856
- ----------------------------------------------------------------------------------------------
Perot Systems Corp., "A"*^ 50,650 671,619
- ----------------------------------------------------------------------------------------------
$12,894,791
- ----------------------------------------------------------------------------------------------
Computer Software - 23.2%
- ----------------------------------------------------------------------------------------------
Amdocs Ltd.* 129,280 $3,794,368
- ----------------------------------------------------------------------------------------------
Business Objects S.A., ADR*^ 63,090 1,763,996
- ----------------------------------------------------------------------------------------------
Citrix Systems, Inc.* 73,150 1,645,875
- ----------------------------------------------------------------------------------------------
Computer Associates International, Inc. 13 352
- ----------------------------------------------------------------------------------------------
FileNet Corp.* 33,910 794,172
- ----------------------------------------------------------------------------------------------
Intuit, Inc.* 9,160 392,048
- ----------------------------------------------------------------------------------------------
Kronos, Inc.* 17,840 996,186
- ----------------------------------------------------------------------------------------------
Macrovision Corp.* 54,980 1,333,265
- ----------------------------------------------------------------------------------------------
McAfee, Inc.* 103,780 2,400,431
- ----------------------------------------------------------------------------------------------
Mercury Interactive Corp.* 14,240 653,331
- ----------------------------------------------------------------------------------------------
Microsoft Corp. 193,270 4,866,539
- ----------------------------------------------------------------------------------------------
MicroStrategy, Inc., "A"*^ 35,310 2,497,123
- ----------------------------------------------------------------------------------------------
Oracle Corp.* 637,878 8,235,005
- ----------------------------------------------------------------------------------------------
Symantec Corp.* 92,680 2,039,887
- ----------------------------------------------------------------------------------------------
VERITAS Software Corp.* 65,800 1,593,676
- ----------------------------------------------------------------------------------------------
$33,006,254
- ----------------------------------------------------------------------------------------------
Computer Software - Systems - 11.0%
- ----------------------------------------------------------------------------------------------
Apple Computer, Inc.* 104,160 $4,672,618
- ----------------------------------------------------------------------------------------------
Black Box Corp. 21,080 821,066
- ----------------------------------------------------------------------------------------------
CDW Corp. 14,420 828,717
- ----------------------------------------------------------------------------------------------
Dell, Inc.* 214,253 8,589,403
- ----------------------------------------------------------------------------------------------
Tech Data Corp.* 18,750 768,562
- ----------------------------------------------------------------------------------------------
$15,680,366
- ----------------------------------------------------------------------------------------------
Electronics - 27.0%
- ----------------------------------------------------------------------------------------------
Amphenol Corp., "A" 53,360 $2,129,064
- ----------------------------------------------------------------------------------------------
Analog Devices, Inc. 70,130 2,575,174
- ----------------------------------------------------------------------------------------------
Applied Materials, Inc.* 160,890 2,815,575
- ----------------------------------------------------------------------------------------------
Canon, Inc., ADR^ 42,020 2,216,135
- ----------------------------------------------------------------------------------------------
Cree, Inc.*^ 26,640 626,573
- ----------------------------------------------------------------------------------------------
FARO Technologies, Inc.* 18,650 493,292
- ----------------------------------------------------------------------------------------------
Integrated Circuit Systems, Inc.* 61,110 1,233,200
- ----------------------------------------------------------------------------------------------
Intel Corp. 217,773 5,222,197
- ----------------------------------------------------------------------------------------------
KLA-Tencor Corp. 32,750 1,618,177
- ----------------------------------------------------------------------------------------------
Marvell Technology Group Ltd.* 97,680 3,574,111
- ----------------------------------------------------------------------------------------------
PerkinElmer, Inc. 24,230 537,421
- ----------------------------------------------------------------------------------------------
PowerDsine Ltd.* 68,580 680,314
- ----------------------------------------------------------------------------------------------
Samsung Electronics Co. Ltd., GDR 10,335 2,676,765
- ----------------------------------------------------------------------------------------------
Seiko Epson Corp. 38,800 1,530,235
- ----------------------------------------------------------------------------------------------
SigmaTel, Inc.* 24,570 1,024,323
- ----------------------------------------------------------------------------------------------
Silicon Laboratories, Inc.* 40,870 1,434,537
- ----------------------------------------------------------------------------------------------
Texas Instruments, Inc. 197,180 5,219,355
- ----------------------------------------------------------------------------------------------
Volterra Semiconductor Corp.* 92,000 1,352,400
- ----------------------------------------------------------------------------------------------
Xilinx, Inc. 51,500 1,555,300
- ----------------------------------------------------------------------------------------------
$38,514,148
- ----------------------------------------------------------------------------------------------
Internet - 5.8%
- ----------------------------------------------------------------------------------------------
Ariba, Inc.*^ 24,680 $224,835
- ----------------------------------------------------------------------------------------------
EarthLink, Inc.* 82,890 723,630
- ----------------------------------------------------------------------------------------------
eBay, Inc.* 66,480 2,848,003
- ----------------------------------------------------------------------------------------------
IAC/InterActiveCorp* 48,780 1,097,550
- ----------------------------------------------------------------------------------------------
Yahoo!, Inc.* 104,750 3,380,282
- ----------------------------------------------------------------------------------------------
$8,274,300
- ----------------------------------------------------------------------------------------------
Leisure & Toys - 0.6%
- ----------------------------------------------------------------------------------------------
Nintendo Co. Ltd. 7,300 $810,606
- ----------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 8.3%
- ----------------------------------------------------------------------------------------------
Captiva Software Corp.* 139,200 $1,692,533
- ----------------------------------------------------------------------------------------------
EMC Corp.* 229,550 2,906,103
- ----------------------------------------------------------------------------------------------
Ingram Micro, Inc., "A"* 106,040 1,900,237
- ----------------------------------------------------------------------------------------------
Lexmark International, Inc., "A"* 36,050 2,888,686
- ----------------------------------------------------------------------------------------------
Network Appliance, Inc.* 64,560 1,937,446
- ----------------------------------------------------------------------------------------------
Zebra Technologies Corp., "A"* 10,880 542,586
- ----------------------------------------------------------------------------------------------
$11,867,591
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 14.8%
- ----------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 483,383 $8,420,532
- ----------------------------------------------------------------------------------------------
Juniper Networks, Inc.* 72,740 1,566,820
- ----------------------------------------------------------------------------------------------
Lucent Technologies, Inc.*^ 577,040 1,771,513
- ----------------------------------------------------------------------------------------------
Motorola, Inc. 170,055 2,663,061
- ----------------------------------------------------------------------------------------------
QUALCOMM, Inc. 140,610 5,077,427
- ----------------------------------------------------------------------------------------------
Research In Motion Ltd.* 24,580 1,624,984
- ----------------------------------------------------------------------------------------------
$21,124,337
- ----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $123,467,376) $142,172,393
- ----------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 6.8%
- ----------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 9,668,344 $9,668,344
- ----------------------------------------------------------------------------------------------
Repurchase Agreement - 0.2%
- ----------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ----------------------------------------------------------------------------------------------
Morgan Stanley, 2.61%, dated 2/28/05, due 3/01/05, total to
be received $290,021 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account), at
Cost $290,000 $290,000
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $133,425,720) $152,130,737
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (6.7)% (9,535,834)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $142,594,903
- ----------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
Abbreviations:
ADR = American Depository Receipt
GDR = Global Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/28/05
ASSETS
Investments, at value, including $9,375,094 of securities
on loan (identified cost, $133,425,720) $152,130,737
- --------------------------------------------------------------------------------------------------
Cash 882
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 506,027
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 93,877
- --------------------------------------------------------------------------------------------------
Interest and dividends receivable 73,234
- --------------------------------------------------------------------------------------------------
Receivable from investment adviser 7,705
- --------------------------------------------------------------------------------------------------
Other assets 16
- --------------------------------------------------------------------------------------------------
Total assets $152,812,478
- --------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares reacquired $439,562
- --------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 9,668,344
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 8,848
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 50,689
- --------------------------------------------------------------------------------------------------
Distribution and service fee 7,510
- --------------------------------------------------------------------------------------------------
Administrative fee 134
- --------------------------------------------------------------------------------------------------
Administrative service fee 4
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 42,484
- --------------------------------------------------------------------------------------------------
Total liabilities $10,217,575
- --------------------------------------------------------------------------------------------------
Net assets $142,594,903
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $485,109,006
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 18,705,017
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (360,896,768)
- --------------------------------------------------------------------------------------------------
Accumulated net investment loss (322,352)
- --------------------------------------------------------------------------------------------------
Net assets $142,594,903
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 16,775,353
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $72,312,375
- --------------------------------------------------------------------------------------------------
Shares outstanding 8,393,242
- --------------------------------------------------------------------------------------------------
Net asset value per share $8.62
- --------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$8.62) $9.15
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $50,001,669
- --------------------------------------------------------------------------------------------------
Shares outstanding 5,981,673
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.36
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $14,424,174
- --------------------------------------------------------------------------------------------------
Shares outstanding 1,728,315
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.35
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $3,792,284
- --------------------------------------------------------------------------------------------------
Shares outstanding 431,306
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $8.79
- --------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $1,877,719
- --------------------------------------------------------------------------------------------------
Shares outstanding 218,980
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $8.57
- --------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $186,682
- --------------------------------------------------------------------------------------------------
Shares outstanding 21,837
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $8.55
- --------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A,
Class B and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- --------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund operations.
SIX MONTHS ENDED 2/28/05
NET INVESTMENT LOSS
Income
- --------------------------------------------------------------------------------------------------
Dividends $1,070,745
- --------------------------------------------------------------------------------------------------
Interest 23,522
- --------------------------------------------------------------------------------------------------
Foreign taxes withheld (6,883)
- --------------------------------------------------------------------------------------------------
Total investment income $1,087,384
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $603,210
- --------------------------------------------------------------------------------------------------
Trustees" compensation 9,202
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 343,344
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 137,264
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 266,797
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 79,772
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 4,268
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 404
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 202
- --------------------------------------------------------------------------------------------------
Administrative fee 4,289
- --------------------------------------------------------------------------------------------------
Custodian fee 31,110
- --------------------------------------------------------------------------------------------------
Printing 40,979
- --------------------------------------------------------------------------------------------------
Postage 9,773
- --------------------------------------------------------------------------------------------------
Auditing fees 20,821
- --------------------------------------------------------------------------------------------------
Legal fees 1,011
- --------------------------------------------------------------------------------------------------
Registration fees 40,306
- --------------------------------------------------------------------------------------------------
Miscellaneous 17,638
- --------------------------------------------------------------------------------------------------
Total expenses $1,610,390
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (3,578)
- --------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (197,076)
- --------------------------------------------------------------------------------------------------
Net expenses $1,409,736
- --------------------------------------------------------------------------------------------------
Net investment loss $(322,352)
- --------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $7,673,275
- --------------------------------------------------------------------------------------------------
Written options transactions (55,971)
- --------------------------------------------------------------------------------------------------
Foreign currency transactions (3,505)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $7,613,799
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- --------------------------------------------------------------------------------------------------
Investments $11,867,140
- --------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (22)
- --------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $11,867,118
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $19,480,917
- --------------------------------------------------------------------------------------------------
Change in net assets from operations $19,158,565
- --------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/28/05 8/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment loss $(322,352) $(2,724,957)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 7,613,799 13,664,197
- --------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 11,867,118 (23,010,134)
- -------------------------------------------------------- ------------ -------------
Change in net assets from operations $19,158,565 $(12,070,894)
- -------------------------------------------------------- ------------ -------------
Change in net assets from fund share transactions $(33,418,462) $(18,052,412)
- -------------------------------------------------------- ------------ -------------
Redemption fees $4,119 $44
- -------------------------------------------------------- ------------ -------------
Total change in net assets $(14,255,778) $(30,123,262)
- -------------------------------------------------------- ------------ -------------
NET ASSETS
At beginning of period $156,850,681 $186,973,943
- --------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $322,352 and $0, respectively) $142,594,903 $156,850,681
- --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the fund's operation). Certain information reflects financial
results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED --------------------------------------------------------------------------
CLASS A 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $7.70 $8.30 $6.25 $10.70 $28.03 $18.34
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.01) $(0.10) $(0.07) $(0.11) $(0.14) $(0.17)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.93 (0.50) 2.12 (4.34) (16.69) 14.44
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.92 $(0.60) $2.05 $(4.45) $(16.83) $14.27
- ---------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(0.18) $(4.58)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- -- (0.32) --
- ------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- -- (0.00)+++ --
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $-- $(0.50) $(4.58)
- ---------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to paid-in
capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ---------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $8.62 $7.70 $8.30 $6.25 $10.70 $28.03
- ---------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+)& 11.95++ (7.23)^^ 32.80 (41.53) (61.02) 87.93
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED --------------------------------------------------------------------------
CLASS A (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.50+ 1.50 1.52 1.51 1.52 1.40
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.16)+ (1.10) (1.05) (1.22) (0.87) (0.81)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 141 162 210 413 294
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $72,312 $75,786 $101,059 $53,142 $66,358 $57,382
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective April 14, 2000, MFS had 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 did not exceed 0.40% annually. This arrangement was effected by
MFS bearing all of the fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense
reimbursement fee not greater than 0.40% of average daily net assets. To the extent that the expense reimbursement fee
exceeded the fund's actual expenses, the excess was applied to unreimbursed amounts paid by MFS under the agreement. This
agreement terminated on December 31, 2004. Effective January 1, 2005 the fund entered into a similar arrangement without
reimbursement. This new arrangement will be in effect until January 1, 2006. In addition, effective June 7, 2004, the
investment adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially all 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 $(0.02) $(0.11) $(0.09) $(0.13) $(0.14) $(0.27)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.74+ 1.60 1.76 1.74 1.55 1.84
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.40)+ (1.20) (1.29) (1.45) (0.90) (1.25)
- ------------------------------------------------------------------------------------------------------------------------------
+ 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 fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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.
(+) Total returns do not include the applicable sales charge. If the charge had been included, the results would have been
lower. The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED --------------------------------------------------------- ENDED
CLASS B 2/28/05 2004 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning
of period $7.50 $8.13 $6.16 $10.61 $27.95 $19.59**
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.03) $(0.15) $(0.11) $(0.17) $(0.25) $(0.14)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency 0.89 (0.48) 2.08 (4.28) (16.64) 8.50
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.86 $(0.63) $1.97 $(4.45) $(16.89) $8.36
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(0.17) $--
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- -- (0.28) --
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- -- (0.00)+++ --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $-- $-- $-- $-- $(0.45) $--
- ----------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $8.36 $7.50 $8.13 $6.16 $10.61 $27.95
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 11.47++ (7.75)^^ 31.98 (41.94) (61.28) 42.67++**
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED --------------------------------------------------------- ENDED
CLASS B (CONTINUED) 2/28/05 2004 2003 2002 2001 8/31/00*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.15+ 2.15 2.18 2.16 2.17 2.14+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.81)+ (1.74) (1.71) (1.87) (1.52) (1.52)+
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 141 162 210 413 294
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $50,002 $50,896 $61,353 $25,997 $44,369 $48,845
- -------------------------------------------------------------------------------------------------------------------------------
(S) MFS had contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses" which are
defined as the fund's operating expenses exclusive of management, distribution and service, and certain other fees and
expenses such that Other Expenses do not exceed 0.40% annually. This arrangement was effected by MFS bearing all of the
fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than
0.40% of average daily net assets. To the extent that the expense reimbursement fee exceeded the fund's actual expenses,
the excess was applied to unreimbursed amounts paid by MFS under the agreement. This agreement terminated on December 31,
2004. Effective January 1, 2005, the fund entered into a similar arrangement without reimbursement. This new arrangement
will be in effect until January 1, 2006. In addition, effective June 7, 2004, the investment adviser has voluntarily
agreed to reimburse the fund for its proportional share of substantially all 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 $(0.04) $(0.16) $(0.12) $(0.19) $(0.25) $(0.18)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.39+ 2.25 2.42 2.39 2.20 2.58+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.05)+ (1.84) (1.95) (2.10) (1.55) (1.96)+
- -------------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class B shares, April 14, 2000, through August 31, 2000.
** The net asset value and total return previously reported as $17.86 and 56.49%, respectively, have been revised to reflect
the net asset value from the day prior to the class" inception date. The net asset value and total return previously
reported were from inception date, the date the share class was first available to public shareholders.
+ 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 fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED --------------------------------------------------------- ENDED
CLASS C 2/28/05 2004 2003 2002 2001 8/31/00*
(UNAUDITED)
Net asset value, beginning
of period $7.48 $8.12 $6.16 $10.61 $27.95 $19.59**
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.03) $(0.15) $(0.11) $(0.17) $(0.25) $(0.15)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency 0.90 (0.49) 2.07 (4.28) (16.64) 8.51
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.87 $(0.64) $1.96 $(4.45) $(16.89) $8.36
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(0.17) $--
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- -- (0.28) --
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- -- (0.00)+++ --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $-- $-- $-- $-- $(0.45) $--
- ----------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $8.35 $7.48 $8.12 $6.16 $10.61 $27.95
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 11.63++ (7.88)^^ 31.82 (41.94) (61.27) 42.67++**
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED --------------------------------------------------------- ENDED
CLASS C (CONTINUED) 2/28/05 2004 2003 2002 2001 8/31/00*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.15+ 2.15 2.18 2.16 2.17 2.14+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.81)+ (1.74) (1.71) (1.87) (1.52) (1.52)+
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 141 162 210 413 294
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $14,424 $15,367 $20,210 $10,476 $17,298 $17,410
- -------------------------------------------------------------------------------------------------------------------------------
(S) MFS had contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses" which are
defined as the fund's operating expenses exclusive of management, distribution and service, and certain other fees and
expenses such that Other Expenses do not exceed 0.40% annually. This arrangement was effected by MFS bearing all of the
fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than
0.40% of average daily net assets. To the extent that the expense reimbursement fee exceeded the fund's actual expenses,
the excess was applied to unreimbursed amounts paid by MFS under the agreement. This agreement terminated on December 31,
2004. Effective January 1, 2005, the fund entered into a similar arrangement without reimbursement. This new arrangement
will be in effect until January 1, 2006. In addition, effective June 7, 2004, the investment adviser has voluntarily
agreed to reimburse the fund for its proportional share of substantially all 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 would have been:
Net investment loss $(0.04) $(0.16) $(0.12) $(0.19) $(0.25) $(0.19)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.39+ 2.25 2.42 2.39 2.20 2.58+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.05)+ (1.84) (1.95) (2.10) (1.55) (1.96)+
- -------------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class C shares, April 14, 2000, through August 31, 2000.
** The net asset value and total return previously reported as $17.86 and 56.49%, respectively, have been revised to reflect
the net asset value from the day prior to the class" inception date. The net asset value and total return previously
reported were from inception date, the date the share class was first available to public shareholders.
+ 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 fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS I2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $7.85 $8.43 $6.33 $10.79 $28.08 $18.34
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income (loss)(S) $0.02 $(0.06) $(0.05) $(0.08) $(0.09) $(0.12)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency 0.92 (0.52) 2.15 (4.38) (16.68) 14.44
- ----------------------------------- ------ ------ ------ ------ ------- ------
Total from investment operations $0.94 $(0.58) $2.10 $(4.46) $(16.77) $14.32
- ----------------------------------- ------ ------ ------ ------ ------- ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(0.19) $(4.58)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- -- (0.33) --
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- -- (0.00)+++ --
- ----------------------------------- ------ ------ ------ ------ ------- ------
Total distributions declared
to shareholders $-- $-- $-- $-- $(0.52) $(4.58)
- ----------------------------------- ------ ------ ------ ------ ------- ------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ----------------------------------- ------ ------ ------ ------ ------- ------
Net asset value, end of period $8.79 $7.85 $8.43 $6.33 $10.79 $28.08
- ----------------------------------- ------ ------ ------ ------ ------- ------
Total return (%)& 11.97++ (6.88)^^ 33.18 (41.33) (60.69) 88.31
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------
CLASS I (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.14+ 1.16 1.17 1.16 1.17 1.09
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.46+ (0.70) (0.71) (0.87) (0.53) (0.57)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 141 162 210 413 294
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $3,792 $13,404 $4,179 $3,045 $5,357 $11,216
- -------------------------------------------------------------------------------------------------------------------------------
(S) MFS had contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses" which are
defined as the fund's operating expenses exclusive of management, distribution and service, and certain other fees and
expenses such that Other Expenses do not exceed 0.40% annually. This arrangement was effected by MFS bearing all of the
fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than
0.40% of average daily net assets. To the extent that the expense reimbursement fee exceeded the fund's actual expenses,
the excess was applied to unreimbursed amounts paid by MFS under the agreement. This agreement terminated on December 31,
2004. Effective January 1, 2005, the fund entered into a similar arrangement without reimbursement. This new arrangement
will be in effect until January 1, 2006. In addition, effective June 7, 2004, the investment adviser has voluntarily
agreed to reimburse the fund for its proportional share of substantially all 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 would have been:
Net investment income (loss) $0.01 $(0.07) $(0.06) $(0.10) $(0.10) $(0.21)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.38+ 1.26 1.41 1.39 1.20 1.53
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.22+ (0.80) (0.95) (1.10) (0.56) (1.01)
- -------------------------------------------------------------------------------------------------------------------------------
+ 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 fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual 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.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 2/28/05 8/31/04 8/31/03*
(UNAUDITED)
Net asset value, beginning of period $7.67 $8.28 $6.16**
- ----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01) $(0.10) $(0.08)
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 0.91 (0.51) 2.20
- ----------------------------------------------------- ------- ------- -------
Total from investment operations $0.90 $(0.61) $2.12
- ----------------------------------------------------- ------- ------- -------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $--
- ----------------------------------------------------- ------- ------- -------
Net asset value, end of period $8.57 $7.67 $8.28
- ----------------------------------------------------- ------- ------- -------
Total return (%)& 11.73++ (7.37)^^ 34.42++**
- ----------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 (CONTINUED) 2/28/05 8/31/04 8/31/03*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.65+ 1.66 1.64+
- ----------------------------------------------------------------------------------------------------------------
Net investment loss (0.26)+ (1.21) (1.22)+
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover 51 141 162
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,878 $1,266 $173
- ----------------------------------------------------------------------------------------------------------------
(S) MFS had contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses"
which are defined as the fund's operating expenses exclusive of management, distribution and service, and
certain other fees and expenses such that Other Expenses do not exceed 0.40% annually. This arrangement
was effected by MFS bearing all of the fund's Other Expenses during the fund's fiscal year and the fund
paying MFS an expense reimbursement fee not greater than 0.40% of average daily net assets. To the extent
that the expense reimbursement fee exceeded the fund's actual expenses, the excess was applied to
unreimbursed amounts paid by MFS under the agreement. This agreement terminated on December 31, 2004.
Effective January 1, 2005, the fund entered into a similar arrangement without reimbursement. This new
arrangement will be in effect until January 1, 2006. In addition, effective June 7, 2004, the investment
adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially all 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
would have been:
Net investment loss $(0.02) $(0.11) $(0.10)
- ----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.89+ 1.76 1.88+
- ----------------------------------------------------------------------------------------------------------------
Net investment loss (0.50)+ (1.31) (1.46)+
- ----------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
** The net asset value and total return previously reported as $6.17 and 34.20%, respectively, have been
revised to reflect the net asset value from the day prior to the class" inception date. The net asset
value and total return previously reported were from inception date, the date the share class was first
available to public shareholders.
+ 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 fund's net asset value and total return calculation include a non-recurring accrual recorded as a
result of an administrative proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales, as described in the Legal Proceedings and Transactions with Affiliates
footnotes. The non-recurring accrual 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. The proceeds were paid to the fund on
February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance
would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED PERIOD ENDED
CLASS R2 2/28/05 8/31/04*
(UNAUDITED)
Net asset value, beginning of period $7.66 $8.79**
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.03) $(0.09)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 0.92 (1.04)
- ----------------------------------------------------------------- ------ -------
Total from investment operations $0.89 $(1.13)
- ----------------------------------------------------------------- ------ -------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++
- ----------------------------------------------------------------- ------ -------
Net asset value, end of period $8.55 $7.66
- ----------------------------------------------------------------- ------ -------
Total return (%)& 11.62++ (12.86)**++^^
- -----------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED PERIOD ENDED
CLASS R2 (CONTINUED) 2/28/05 8/31/04*
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.90+ 1.91+
- -----------------------------------------------------------------------------------------------------
Net investment loss (0.61)+ (1.47)+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 51 141
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $187 $132
- -----------------------------------------------------------------------------------------------------
(S) MFS had contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other
Expenses" which are defined as the fund's operating expenses exclusive of management,
distribution and service, and certain other fees and expenses such that Other Expenses do not
exceed 0.40% annually. This arrangement was effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not
greater than 0.65% of average daily net assets. To the extent that the expense reimbursement fee
exceeded the fund's actual expenses, the excess was applied to unreimbursed amounts paid by MFS
under the agreement. This agreement terminated on December 31, 2004. Effective January 1, 2005,
the fund entered into a similar arrangement without reimbursement. This new arrangement will be
in effect until January 1, 2006. In addition, effective June 7, 2004, the investment adviser has
voluntarily agreed to reimburse the fund for its proportional share of substantially all 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 would have been:
Net investment loss $(0.04) $(0.10)
- --------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.14+ 2.01+
- --------------------------------------------------------------------------------------------
Net investment loss (0.85)+ (1.57)+
- --------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
** The net asset value and total return previously reported as $8.74 and (12.36)%, respectively,
have been revised to reflect the net asset value from the day prior to the class" inception
date. The net asset value and total return previously reported were from inception date, the
date the share class was first available to public shareholders.
+ 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 fund's net asset value and total return calculation include a non-recurring accrual recorded
as a result of an administrative proceeding regarding disclosure of brokerage allocation
practices in connection with fund sales, as described in the Legal Proceedings and Transactions
with Affiliates footnotes. The non-recurring accrual 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. The
proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which
performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Technology Fund (the fund) is a diversified series of MFS Series Trust I
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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
approximates market value as determined by the Board of Trustees. Money market
mutual funds are valued at net asset value. Investment valuations, other
assets, and liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars based upon current exchange rates. 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.
WRITTEN OPTIONS - The fund may write call or put options in exchange for a
premium. The premium is initially recorded as a liability, which is
subsequently adjusted to the current value of the option contract. When a
written option expires, the fund realizes a gain equal to the amount of the
premium received. When a written call option is exercised or closed, the
premium received is offset against the proceeds to determine the realized gain
or loss. When a written put option is exercised, the premium reduces the cost
basis of the security purchased by the fund. The fund, as writer of an option,
may have no control over whether the underlying securities may be sold (call)
or purchased (put) and, as a result, bears the market risk of an unfavorable
change in the price of the securities underlying the written option. In
general, written call options may serve as a partial hedge against decreases in
value in the underlying securities to the extent of the premium received.
Written options may also be used as part of an income producing strategy
reflecting the view of the fund's management on the direction of interest
rates.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the fund with indemnification against Borrower default. The
fund bears the risk of loss with respect to the investment of cash collateral.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or short-term securities. A portion of the income generated upon
investment of the collateral is remitted to the Borrowers, and the remainder
is allocated between the fund and the lending agent. On loans collateralized
by U.S. Treasury securities, a fee is received from the Borrower, and is
allocated between the fund and the lending agent. Income from securities
lending is included in interest income on the Statement of Operations. The
dividend and interest income earned on the securities loaned is accounted for
in the same manner as other dividend and interest income.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, 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). Effective April 1, 2005, the fund will no longer charge
a redemption fee. See the fund's prospectus for details. Any redemption fees
charged 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.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the statement of operations, or in unrealized gain/loss if the security is
still held by the fund.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. During the six months ended February 28, 2005, the fund's custodian fees
were reduced by $1,690 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the six months ended February 28, 2005, the fund's miscellaneous
expenses were reduced by $1,888 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, wash sales and capital losses.
The fund paid no distributions for the years ended August 31, 2004 and August
31, 2003.
As of August 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(365,528,681)
----------------------------------------------------------
Unrealized appreciation 3,856,013
----------------------------------------------------------
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 as follows:
EXPIRATION DATE
August 31, 2007 $(1,836,344)
----------------------------------------------------------
August 31, 2008 (7,671,099)
----------------------------------------------------------
August 31, 2009 (114,220,557)
----------------------------------------------------------
August 31, 2010 (162,445,817)
----------------------------------------------------------
August 31, 2011 (74,891,618)
----------------------------------------------------------
August 31, 2012 (4,463,246)
----------------------------------------------------------
Total $(365,528,681)
----------------------------------------------------------
The availability of a portion of these respective capital loss carryforwards,
which were acquired on August 22, 2003, in connection with the MFS Global
Telecommunications Fund acquisition, may be limited in a given year.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates are
generally due to differences in separate class expenses. Class B shares will
convert to Class A shares approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
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 had 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 did not exceed 0.40% annually. This
arrangement was effected by MFS bearing all of the fund's other expenses during
the fund's fiscal year, and the fund paying MFS an expense reimbursement fee
not greater than 0.40% of average daily net assets for Class A, Class B, Class
C, Class I, and Class R1 and not greater than 0.65% of average daily net assets
for Class R2. To the extent that the expense reimbursement fee exceeded the
fund's actual expenses, the excess was applied to unreimbursed amounts paid by
MFS under the agreement. This agreement terminated on December 31, 2004. The
fund will not be required to reimburse MFS the $150,885 borne under this
agreement. Effective January 1, 2005, the fund entered into a similar expense
arrangement without reimbursement. This new arrangement will be in effect until
January 1, 2006.
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). The fund has an
unfunded defined benefit plan for retired Independent Trustees and an unfunded
retirement benefit deferral plan for current Independent Trustees. Included in
Trustees" compensation is a net increase of $4,331 as a result of the change in
the fund's unfunded retirement benefit deferral plan for certain current
Independent Trustees and a pension expense of $292 for retired Independent
Trustees for the six months ended February 28, 2005.
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. On July 28,
2004, the fund accrued an estimate of the amount to be received pursuant to
this matter in the amount of $102,085 which 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. The proceeds were paid to the fund on February 16,
2005.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. 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. The
fund paid MFS an administrative fee up to the following annual percentage rates
of the fund's average daily net assets:
BEGINNING OF
PERIOD THROUGH
EFFECTIVE DATE 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
- -------------------------------------------------------------------------------
Next $2.5 billion 0.00832% 0.01206%
- -------------------------------------------------------------------------------
Next $2.5 billion 0.00032% 0.00056%
- -------------------------------------------------------------------------------
In excess of $7 billion 0.00000% 0.00000%
- -------------------------------------------------------------------------------
The March 1, 2005 rates were not effective during the current reporting
period. For the six months ended February 28, 2005, the fund paid MFS $4,289
equivalent to 0.0053% 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
$4,898 for the six months ended February 28, 2005, as its portion of the sales
charge on sales of Class A shares of the fund.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class R1, and Class R2, shares pursuant to rule 12b-1 of the Investment Company
Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD an annual
percentage of its average daily net assets attributable to certain share
classes as compensation for services provided by MFD and financial
intermediaries in connection with the distribution and servicing of its shares.
One component of the plan is a distribution fee and another is a service fee
paid by MFD to financial intermediaries that enter into sales or service
agreements with MFD or its affiliates based on the average daily net assets of
accounts attributable to such intermediaries. The fees are calculated based on
each class' average daily net assets. The maximum distribution and service fees
for each class of shares are as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------------------
MFD may retain all or a portion of the service fee, including for accounts for which there is no financial
intermediary of record. Service fees retained by MFD for the six months ended February 28, 2005 amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $4,386 $1,073 $292 $9 $12
- -----------------------------------------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended February 28, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual Percentage Rates 0.35% 1.00% 1.00% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within, for Class A shares, 12
months following the purchase, and, for Class C shares, the first year 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 of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended February
28, 2005 were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $2,826 $104,481 $1,666
- -------------------------------------------------------------------------------
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. For the beginning of the period through December 31, 2004, the
fund was charged up to 0.0861% of its average daily net assets. For the period
January 1, 2005 through February 28, 2005, the fund is charged up to 0.1035% of
its average daily net assets. For the six months ended February 28, 2005, the
fund paid MFSC a fee of $72,298 for shareholder services which equated to
0.0899% of the fund's average daily net assets. Effective March 1, 2005, the
fund is charged up to 0.1159% of its average daily net assets. Shareholder
service costs include out of pocket expenses and sub accounting services
expenses paid by MFSC on behalf of the fund and subsequently reimbursed to MFSC
which amounted to $191,116 and other costs paid by the fund directly to
unaffiliated vendors for the six months ended February 28, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$80,484,499 and $113,596,665, 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 $136,407,606
----------------------------------------------------------
Gross unrealized appreciation $19,099,487
----------------------------------------------------------
Gross unrealized depreciation (3,376,356)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $15,723,131
----------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 1,257,549 $10,821,589 7,992,949 $70,472,191
- --------------------------------------------------------------------------------------------------------
Shares reacquired (2,705,768) (23,361,295) (10,325,346) (90,616,338)
- --------------------------------------------------------------------------------------------------------
Net change (1,448,219) $(12,539,706) (2,332,397) $(20,144,147)
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 342,738 $2,885,339 1,756,482 $15,095,885
- --------------------------------------------------------------------------------------------------------
Shares reacquired (1,150,858) (9,705,324) (2,510,934) (21,488,750)
- --------------------------------------------------------------------------------------------------------
Net change (808,120) $(6,819,985) (754,452) $(6,392,865)
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 104,252 $869,436 583,813 $5,022,408
- --------------------------------------------------------------------------------------------------------
Shares reacquired (429,196) (3,615,618) (1,018,503) (8,740,462)
- --------------------------------------------------------------------------------------------------------
Net change (324,944) $(2,746,182) (434,690) $(3,718,054)
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 110,164 $968,066 1,423,278 $12,599,165
- --------------------------------------------------------------------------------------------------------
Shares reacquired (1,386,134) (12,784,322) (211,528) (1,856,276)
- --------------------------------------------------------------------------------------------------------
Net change (1,275,970) $(11,816,256) 1,211,750 $10,742,889
- --------------------------------------------------------------------------------------------------------
CLASS R1 SHARES
Shares sold 131,859 $1,129,993 173,130 $1,566,350
- --------------------------------------------------------------------------------------------------------
Shares reacquired (77,932) (665,589) (28,965) (259,610)
- --------------------------------------------------------------------------------------------------------
Net change 53,927 $464,404 144,165 $1,306,740
- --------------------------------------------------------------------------------------------------------
Six months ended 2/28/05 Period ended 8/31/04*
SHARES AMOUNT SHARES AMOUNT
CLASS R2 SHARES
Shares sold 7,974 $68,144 25,552 $219,603
- --------------------------------------------------------------------------------------------------------
Shares reacquired (3,420) (28,881) (8,269) (66,578)
- --------------------------------------------------------------------------------------------------------
Net change 4,554 $39,263 17,283 $153,025
- --------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the 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 six months ended February 28, 2005 was $499, and
is included in miscellaneous expense. The fund had no significant borrowings
during the six months ended February 28, 2005.
(7) FINANCIAL INSTRUMENTS
The fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options. The notional or contractual amounts of
these instruments represent the investment the fund has in particular classes
of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered.
There were no outstanding financial instruments with off-balance-sheet risk at
the end of the period.
(8) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding 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. 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 intermediaries who support the sale of MFS
fund shares. 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. The
final distribution plan was approved by the SEC on January 21, 2005 and the
affected MFS funds received the payment on February 16, 2005.
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 open-end retail fund ("MFS
retail funds") 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 they
prohibited market timing, MFS did not limit trading activity in 11 domestic
large cap stock, high grade bond and money market retail funds. MFS' former
Chief Executive Officer and former President 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. These individuals 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, MFS Fund Distributors, Inc., MFS Service Center,
Inc., MFS Corporation Retirement Committee, Sun Life Financial Inc., various
MFS funds, certain current and/or former 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 ERISA
actions by participants in certain retirement plan accounts on behalf of those
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, Allianz Dresdner),
No. 1:04-md-15863 (transfer began March 19, 2004)). The market timing cases
related to the MFS complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM
(direct), Hammerslough v. MFS et al., Case No. 04-md-01620 (derivative) and
Anita Walker v. MFS et al., Case No. 1:04-CV-01758 (ERISA). The plaintiffs in
these consolidated lawsuits generally seek injunctive relief including removal
of the named Trustees, adviser and distributor, rescission of contracts and
12b-1 Plans, disgorgement of fees and profits, monetary damages, punitive
damages, attorney's fees and costs and other equitable and declaratory relief.
Two 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) (a consolidated action) and Marcus Dumond, et al. v. Massachusetts
Financial Servs. Co., et al., No. 04cv11458 (GAO)). The plaintiffs in these
lawsuits generally seek compensatory damages, punitive damages, recovery of
fees, rescission of contracts, an accounting, restitution, declaratory relief,
equitable and/or injunctive relief and attorney's fees and costs. The various
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 (ii) received excessive compensation as fiduciaries to the MFS funds,
or (iii) 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. 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 certain 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 distributed $50 million 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.
- -------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
- -------------------------------------------------------------------------------
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.
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.
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
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
SCT-SEM-04/05 50M
MFS(R) VALUE FUND 2/28/05
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
SEMIANNUAL REPORT
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 4
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MANAGEMENT REVIEW 5
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PERFORMANCE SUMMARY 8
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EXPENSE TABLE 13
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PORTFOLIO OF INVESTMENTS 15
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FINANCIAL STATEMENTS 21
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NOTES TO FINANCIAL STATEMENTS 45
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PROXY VOTING POLICIES AND INFORMATION 58
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QUARTERLY PORTFOLIO DISCLOSURE 58
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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]
Last summer and fall, I wrote to you about enhancements that MFS(R) was making
to its investment process. Our goal, as always, was to deliver strong
performance across all asset classes. I am now happy to report to you that 2004
was a very successful year for MFS, relative to our peers in the mutual fund
industry. While there will always be room for improvement, we believe the
enhancements we have made to our investment process resulted in significantly
improved performance across the MFS Family of Funds(R).
You may remember some of the enhancements I outlined last year.
They included
o increasing collaboration and information sharing among our investment
personnel across asset classes, through an Investment Management Committee
with members from our Domestic Equity, International Equity, Fixed Income,
and Quantitative Research teams
o increasing the number of analysts supporting our portfolio managers and
doubling the average investment experience of our domestic equity analyst
staff
o making additional use of our most-seasoned portfolio managers to mentor
research analysts
o combining more quantitative, top-down risk control and security analysis
with our traditional bottom-up research process
o opening a research office in Mexico City to complement our existing staff
in Boston, London, Singapore, and Tokyo
The effect of these enhancements, I believe, is evident in the 2004 performance
of our funds. For the 12 months ended December 31, 2004, 80% of MFS domestic
equity funds, 100% of MFS international equity funds, and 80% of MFS fixed-
income funds delivered results in the top half of their Lipper peer groups.
Our longer-term performance also benefited from our ongoing commitment to the
MFS Original Research(R) process: more than 75% of MFS funds were in the top
half of their respective Lipper categories over the 3-, 5-, and 10-year periods
ended December 31, 2004.
Of course, I cannot offer any guarantees that our performance will repeat
itself. Still, I am confident that the recent enhancements to our investment
process will continue to benefit shareholders in 2005 and beyond.
What I can tell you with certainty is that the way you manage your investments
will determine how well you take advantage of the performance that financial
markets deliver. Historically, individual investors have tended to underperform
the markets. For example, a 2003 study by DALBAR, Inc. showed that over the
nearly two decades from 1984 through 2002, the average U.S. stock investor
earned a 2.6% average annual return at a time when U.S. stocks, as measured by
the Standard & Poor's 500 Stock Index, delivered a 12.2% average annual
return.(1)
This huge discrepancy, in our view, occurred because nonprofessional investors
generally did not adhere to the basic principles followed by most professional
investors: allocate among asset classes, diversify within each asset class, and
rebalance one's portfolio on a routine schedule. I elaborated on this "ADR"
theme in fund reports over the last few months of 2004. For more information on
how to apply a Disciplined Diversification(SM) strategy to your portfolio using
the principles of ADR, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Web site, MFS.COM.
As always, we appreciate your confidence in MFS, and you can be sure of our
continued commitment to do the best we can to help you pursue your long-term
financial goals.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management
April 15, 2005
It is not possible to invest directly in an index.
Lipper rankings and performance are based on historical average annual returns
of Class A shares, and do not include any sales charges. Past performance is no
guarantee of future results.
Asset allocation and diversification cannot guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
(1) Source: DALBAR July 2003 update to its Quantitative Analysis of Investment
Behavior; DALBAR, Inc., is a financial-services market research firm
headquartered in Boston, MA.
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PORTFOLIO COMPOSITION
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PORTFOLIO STRUCTURE
Stocks 97.5%
Cash & Other Net Assets 5.5%
TOP TEN HOLDINGS
Bank of America Corp. 3.8%
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Citigroup, Inc. 3.5%
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Altria Group, Inc. 3.0%
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ConocoPhillips 2.7%
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Goldman Sachs Group, Inc. 2.6%
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MetLife, Inc. 2.2%
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SunTrust Banks, Inc. 2.2%
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Exxon Mobil Corp. 2.2%
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Sprint Corp. 2.1%
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Allstate Corp. 2.1%
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SECTOR WEIGHTINGS
Financial Services 27.7%
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Energy 12.3%
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Consumer Staples 10.3%
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Utilities & Communications 9.7%
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Basic Materials 8.9%
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Industrial Goods & Services 8.2%
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Health Care 7.2%
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Leisure 5.9%
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Retailing 1.8%
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Special Products & Services 1.8%
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Transportation 1.6%
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Technology 1.4%
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Autos & Housing 0.7%
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COUNTRY WEIGHTINGS
United States 88.7%
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Great Britain 4.1%
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Switzerland 2.5%
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France 1.9%
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Sweden 0.3%
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Canada 0.1%
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Other 2.4%
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Percentages are based on net assets as of 2/28/05.
The portfolio is actively managed, and current holdings may be different.
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MANAGEMENT REVIEW
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SUMMARY OF RESULTS
For the six months ended February 28, 2005, Class A shares of the MFS Value
Fund provided a total return of 13.41%, not including sales charges. In
comparison, the fund's benchmark, the Russell 1000 Value Index, returned
13.75%. The fund's investment objective is to seek capital appreciation and
reasonable income. The fund invests, under normal market conditions, at least
65% of its net assets in income producing equity securities of companies which
MFS believes are undervalued in the market relative to their long term
potential.
MARKET ENVIRONMENT
Over the period, many measures of global economic growth, including employment
and corporate spending, continued to improve, although we feel that high oil
prices, rising short-term interest rates in the United States, a decline in the
value of the U.S. dollar against most major currencies, and geopolitical
uncertainty impacted markets. But, oil prices pulled back from their record
levels toward the end of 2004 and, in our view, investors seemed to turn their
attention to strong corporate profits and economic growth.
DETRACTORS FROM PERFORMANCE
A slightly underweighted position in the strong-performing energy sector
detracted from relative performance. To a lesser extent, stock selection in the
energy sector also held back results. An underweighted position in Exxon Mobil,
as well as not holding ChevronTexaco and independent oil refiner Valero Energy,
proved detrimental to relative returns.
Our positioning in the poor-performing health care sector also detracted from
the fund's relative performance. Pharmaceutical firm Pfizer (not an index
constituent) was among the top detractors in this group.
Stocks in other sectors that held back relative returns included mortgage
financer Fannie Mae, forest products company International Paper, and consumer
products manufacturer Kimberly-Clark from the financial services, basic
materials, and consumer staples sectors respectively. Not holding computer
manufacturer Apple Computer also detracted from results as the stock
dramatically outperformed the benchmark.
While it averaged less than 3% over the period, the fund's cash position held
back relative performance. As with nearly all portfolios, this fund holds some
cash to buy new holdings and to provide liquidity. In a period when equity
markets - as measured by the Russell 1000 Value Index - rose, holding any cash
hurt relative performance. The index does not have a cash position.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the utilities and communications sector was the strongest
contributor to performance relative to the fund's benchmark, the Russell 1000
Value Index. Largely avoiding SBC Communications* (an index constituent that
underperformed the benchmark) and holding electric power generator TXU helped
results in this group.
Overweighted positions in the basic materials and consumer staples sectors also
aided results. In basic materials, agricultural products supplier Monsanto was
one of the top overall contributors. In the consumer staples group, an
overweighted position in agricultural commodities processor Archer Daniels
Midland boosted relative performance.
Although the health care and energy sectors were among the fund's top
detracting sectors for the period, several stocks from these sectors aided
relative returns. In energy, integrated oil and gas company ConocoPhillips, oil
and gas production company Unocal, and deepwater oil driller Noble Corp. were
among our top contributors. In health care, we held an underweight position in
Merck at the beginning of the period when the stock declined in value, and we
increased our exposure after the company voluntarily withdrew its Vioxx product
from the market. This positioning helped relative results.
Similarly, an underweighted position in J.P. Morgan Chase & Co. aided relative
performance as the financial services stock generated negative returns over the
period.
During the reporting period, shifts in currency valuations were a significant
contributor to performance relative to the benchmark. The base currency of the
fund is the U.S. dollar and the performance of the fund and its benchmark is
presented in terms of this currency. Nevertheless, specific holdings of the
fund and benchmark may be denominated in different currencies and, therefore,
present the possibility of currency depreciation or appreciation. Because the
exposures of the fund and the benchmark to foreign currency movements may
differ, from time to time, these movements may have a material impact on
relative performance.
Respectfully,
/s/ Steven R. Gorham
Steven R. Gorham
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.
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PERFORMANCE SUMMARY THROUGH 2/28/05
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Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including the reinvestment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR I SHARES, CALL 1-888-808-6374.) 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. HIGH
SHORT-TERM RETURNS FOR ANY PERIOD MAY BE AND LIKELY WERE ATTRIBUTABLE TO
FAVORABLE MARKET CONDITIONS DURING THAT PERIOD, WHICH MAY NOT BE REPEATABLE.
THE PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURNS
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Average annual
without sales charge
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Class
Share class inception date 6-mo 1-yr 3-yr 5-yr Life*
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A 1/02/96 13.41% 13.44% 7.92% 10.95% 13.44%
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B 11/04/97 13.05% 12.72% 7.23% 10.24% 12.86%
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C 11/05/97 13.07% 12.68% 7.23% 10.23% 12.86%
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I 1/02/97 13.61% 13.84% 8.29% 11.33% 13.70%
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R1** 12/31/02 13.33% 13.26% 7.81% 10.88% 13.40%
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R2** 10/31/03 13.21% 13.02% 7.74% 10.84% 13.38%
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529A 7/31/02 13.26% 13.08% 7.64% 10.77% 13.34%
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529B 7/31/02 12.91% 12.41% 7.09% 10.44% 13.15%
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529C 7/31/02 12.88% 12.38% 7.09% 10.44% 13.15%
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Average annual
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Comparative benchmarks 6-mo 1-yr 3-yr 5-yr Life*
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Average equity
income fund+ 11.61% 10.53% 6.74% 6.58% 8.97%
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Russell 1000 Value Index# 13.75% 13.74% 9.32% 7.94% 11.34%
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Average annual
with sales charge
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Share class
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A 6.89% 6.92% 5.81% 9.64% 12.71%
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B 9.05% 8.72% 6.36% 9.96% 12.86%
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C 12.07% 11.68% 7.23% 10.23% 12.86%
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529A 6.75% 6.58% 5.53% 9.47% 12.61%
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529B 8.91% 8.41% 6.21% 10.17% 13.15%
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529C 11.88% 11.38% 7.09% 10.44% 13.15%
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I, R1 and R2 Class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
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Cumulative without
sales charge
- ------------------------
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A 13.41% 13.44% 25.69% 68.12% 217.23%
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B 13.05% 12.72% 23.30% 62.78% 202.74%
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C 13.07% 12.68% 23.29% 62.75% 202.74%
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I 13.61% 13.84% 27.00% 70.99% 223.98%
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R1** 13.33% 13.26% 25.29% 67.59% 216.24%
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R2** 13.21% 13.02% 25.07% 67.30% 215.68%
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529A 13.26% 13.08% 24.70% 66.80% 214.75%
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529B 12.91% 12.41% 22.81% 64.27% 209.97%
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529C 12.88% 12.38% 22.81% 64.27% 209.97%
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* For the period from the commencement of the fund's investment operations,
January 2, 1996, through February 28, 2005. Index information is from
January 2, 1996.
** Effective April 1, 2005, Class R1 shares have been renamed "Class R
shares", and Class R2 shares have been renamed "Class R3 shares". In
addition, on April 1, 2005, the fund launched the following new R Classes:
R1, R2, R4, and R5. All references herein to Class R1 and Class R2 shares
are as of February 28, 2005 and do not reflect the renaming of Class R1 and
Class R2 shares.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
Russell 1000 Value Index - is constructed to provide a comprehensive barometer
for the value securities in the large-cap segment of the U.S. equity universe.
Companies in this index generally have lower price-to-book ratios and lower
forecasted growth values.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results including sales charge reflect the deduction of the
maximum 5.75% sales charge. Class B and 529B results including sales charge
reflect the deduction of the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C and 529C results
including sales charge (assuming redemption within one year from the end of the
prior month of purchase) reflect the deduction of the 1% CDSC. Class I shares
have no sales charges and are available only to certain investors. Class R1 and
R2 shares have no sales charges and are available only to certain retirement
plans. Class 529A, 529B, 529C shares are only available in conjunction with
qualified tuition programs, such as the MFS 529 Savings Plan. 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.
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 share class to which it is blended, and
lower performance for share classes with lower operating expenses than the
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.
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. The
proceeds were paid to the fund on February 16, 2005.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
The fund is susceptible to market risk, which is the risk that the price of a
security held by the fund may decline due to changing economic, political or
market conditions, or disappointing earnings results.
The fund may invest in securities that are undervalued based on its belief that
the market value of these securities will rise due to anticipated events and
investor perceptions. If these events do not occur or are delayed, or if
investor perceptions about the securities do not improve, the market price of
these securities may not rise as expected or may fall.
Large cap companies tend to go in and out of favor based on market and economic
conditions. Large cap companies tend to be less volatile than companies with
smaller market capitalizations. In exchange for this potentially lower risk,
the fund's value may not rise as much as the value of funds that emphasize
smaller cap companies.
Income producing equity securities may react like fixed income securities to
changes in interest rates. Thus, when interest rates rise, the prices of income
producing equity securities may fall. Conversely, a decrease in interest rates
may cause these securities to increase in value.
Investing in foreign securities involves risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject.
Over-the-counter (OTC) transactions involve risks in addition to those
associated with transactions in securities traded on exchanges. OTC-listed
companies may have limited product lines, markets or financial resources. Many
OTC stocks trade less frequently and in smaller volume than exchange-listed
stocks. The values of these stocks may be more volatile than exchange-listed
stocks, and the fund may experience difficulty in buying and selling these
stocks at prevailing market prices.
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
SEPTEMBER 1, 2004, THROUGH FEBRUARY 28, 2005.
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, September 1, 2004 through February
28, 2005.
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
- --------------
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Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 9/01/04-
Ratio 9/01/04 2/28/05 2/28/05
- --------------------------------------------------------------------------------
Actual 1.15% $1,000 $1,134 $6.08
A ------------------------------------------------------------------------
Hypothetical* 1.15% $1,000 $1,019 $5.76
- --------------------------------------------------------------------------------
Actual 1.80% $1,000 $1,131 $9.51
B -------------------------------------------------------------------------
Hypothetical* 1.80% $1,000 $1,016 $9.00
- --------------------------------------------------------------------------------
Actual 1.80% $1,000 $1,131 $9.51
C ------------------------------------------------------------------------
Hypothetical* 1.80% $1,000 $1,016 $9.00
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Actual 0.80% $1,000 $1,136 $4.24
I ------------------------------------------------------------------------
Hypothetical 0.80% $1,000 $1,021 $4.01
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Actual 1.30% $1,000 $1,133 $6.88
R1 ------------------------------------------------------------------------
Hypothetical 1.30% $1,000 $1,018 $6.50
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Actual 1.55% $1,000 $1,132 $8.19
R2 ------------------------------------------------------------------------
Hypothetical 1.55% $1,000 $1,017 $7.75
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Actual 1.40% $1,000 $1,133 $7.40
529A ------------------------------------------------------------------------
Hypothetical 1.40% $1,000 $1,018 $7.00
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Actual 2.05% $1,000 $1,129 $10.82
529B ------------------------------------------------------------------------
Hypothetical 2.05% $1,000 $1,015 $10.24
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Actual 2.05% $1,000 $1,129 $10.82
529C ------------------------------------------------------------------------
Hypothetical 2.05% $1,000 $1,015 $10.24
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* 5% class return per year before expenses.
** 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.
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PORTFOLIO OF INVESTMENTS (unaudited) - 2/28/05
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The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 97.5%
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ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------
Aerospace - 4.0%
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Lockheed Martin Corp. 2,016,890 $119,440,226
- -----------------------------------------------------------------------------------------------
Northrop Grumman Corp.^ 1,835,260 97,085,254
- -----------------------------------------------------------------------------------------------
United Technologies Corp. 689,810 68,898,223
- -----------------------------------------------------------------------------------------------
$285,423,703
- -----------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.4%
- -----------------------------------------------------------------------------------------------
Diageo PLC 2,231,613 $31,764,550
- -----------------------------------------------------------------------------------------------
Banks & Credit Companies - 16.3%
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American Express Co. 1,410,500 $76,378,575
- -----------------------------------------------------------------------------------------------
Bank of America Corp. 5,699,484 265,880,928
- -----------------------------------------------------------------------------------------------
Citigroup, Inc. 5,205,170 248,390,712
- -----------------------------------------------------------------------------------------------
Fannie Mae 2,285,490 133,609,745
- -----------------------------------------------------------------------------------------------
Freddie Mac 586,360 36,354,320
- -----------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co. 1,879,756 68,705,082
- -----------------------------------------------------------------------------------------------
MBNA Corp. 1,243,440 31,546,073
- -----------------------------------------------------------------------------------------------
PNC Financial Services Group, Inc. 1,487,090 78,280,418
- -----------------------------------------------------------------------------------------------
SunTrust Banks, Inc. 2,141,980 155,165,031
- -----------------------------------------------------------------------------------------------
Wells Fargo & Co. 1,004,470 59,645,429
- -----------------------------------------------------------------------------------------------
$1,153,956,313
- -----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.1%
- -----------------------------------------------------------------------------------------------
Comcast Corp., "Special A"^* 1,870,500 $59,594,130
- -----------------------------------------------------------------------------------------------
Time Warner, Inc.^* 1,439,620 24,804,653
- -----------------------------------------------------------------------------------------------
Viacom, Inc., "B"^ 2,995,563 104,545,149
- -----------------------------------------------------------------------------------------------
Walt Disney Co. 1,230,440 34,378,493
- -----------------------------------------------------------------------------------------------
$223,322,425
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Brokerage & Asset Managers - 5.2%
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Franklin Resources, Inc.^ 375,450 $26,352,836
- -----------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 1,687,890 183,642,432
- -----------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. 404,620 36,893,252
- -----------------------------------------------------------------------------------------------
Mellon Financial Corp.^ 2,408,440 69,074,059
- -----------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 893,880 52,363,490
- -----------------------------------------------------------------------------------------------
$368,326,069
- -----------------------------------------------------------------------------------------------
Business Services - 1.8%
- -----------------------------------------------------------------------------------------------
Accenture Ltd., "A"^* 3,556,520 $90,869,086
- -----------------------------------------------------------------------------------------------
Fiserv, Inc.* 898,590 34,092,505
- -----------------------------------------------------------------------------------------------
$124,961,591
- -----------------------------------------------------------------------------------------------
Chemicals - 5.7%
- -----------------------------------------------------------------------------------------------
Dow Chemical Co.^ 1,438,850 $79,352,578
- -----------------------------------------------------------------------------------------------
E.I. du Pont de Nemours & Co. 1,860,380 99,158,254
- -----------------------------------------------------------------------------------------------
Monsanto Co. 476,800 28,026,304
- -----------------------------------------------------------------------------------------------
Nalco Holding Co.^* 636,970 12,452,764
- -----------------------------------------------------------------------------------------------
PPG Industries, Inc. 1,685,910 121,301,225
- -----------------------------------------------------------------------------------------------
Syngenta AG 560,690 62,830,120
- -----------------------------------------------------------------------------------------------
$403,121,245
- -----------------------------------------------------------------------------------------------
Computer Software - 0.4%
- -----------------------------------------------------------------------------------------------
Symantec Corp.* 1,260,200 $27,737,002
- -----------------------------------------------------------------------------------------------
Computer Software - Systems - 0.6%
- -----------------------------------------------------------------------------------------------
Hewlett-Packard Co. 1,352,160 $28,124,928
- -----------------------------------------------------------------------------------------------
International Business Machines Corp. 138,800 12,850,104
- -----------------------------------------------------------------------------------------------
$40,975,032
- -----------------------------------------------------------------------------------------------
Construction - 0.7%
- -----------------------------------------------------------------------------------------------
Masco Corp. 1,564,660 $52,760,335
- -----------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.4%
- -----------------------------------------------------------------------------------------------
Kimberly-Clark Corp. 1,479,300 $97,604,214
- -----------------------------------------------------------------------------------------------
Containers - 0.3%
- -----------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.^* 1,468,200 $24,416,166
- -----------------------------------------------------------------------------------------------
Electrical Equipment - 1.9%
- -----------------------------------------------------------------------------------------------
Cooper Industries Ltd., "A" 645,280 $44,763,074
- -----------------------------------------------------------------------------------------------
Emerson Electric Co. 1,099,800 72,938,736
- -----------------------------------------------------------------------------------------------
Tyco International Ltd. 491,300 16,448,724
- -----------------------------------------------------------------------------------------------
$134,150,534
- -----------------------------------------------------------------------------------------------
Electronics - 0.4%
- -----------------------------------------------------------------------------------------------
Analog Devices, Inc. 785,200 $28,832,544
- -----------------------------------------------------------------------------------------------
Energy - Independent - 2.9%
- -----------------------------------------------------------------------------------------------
Devon Energy Corp. 797,290 $37,305,199
- -----------------------------------------------------------------------------------------------
EOG Resources, Inc.^ 488,730 44,533,078
- -----------------------------------------------------------------------------------------------
Unocal Corp.^ 2,243,206 121,357,445
- -----------------------------------------------------------------------------------------------
$203,195,722
- -----------------------------------------------------------------------------------------------
Energy - Integrated - 8.0%
- -----------------------------------------------------------------------------------------------
BP PLC, ADR^ 1,432,620 $93,005,690
- -----------------------------------------------------------------------------------------------
ConocoPhillips 1,706,050 189,183,884
- -----------------------------------------------------------------------------------------------
Exxon Mobil Corp. 2,428,810 153,767,961
- -----------------------------------------------------------------------------------------------
Total S.A., ADR^ 1,119,920 133,494,464
- -----------------------------------------------------------------------------------------------
$569,451,999
- -----------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 5.5%
- -----------------------------------------------------------------------------------------------
Archer Daniels Midland Co.^ 3,886,515 $93,665,011
- -----------------------------------------------------------------------------------------------
H.J. Heinz Co. 1,431,200 53,870,368
- -----------------------------------------------------------------------------------------------
Kellogg Co. 2,323,570 102,237,080
- -----------------------------------------------------------------------------------------------
Nestle S.A. 131,459 36,516,389
- -----------------------------------------------------------------------------------------------
PepsiCo, Inc. 780,486 42,036,976
- -----------------------------------------------------------------------------------------------
Sara Lee Corp.^ 2,618,030 58,643,872
- -----------------------------------------------------------------------------------------------
$386,969,696
- -----------------------------------------------------------------------------------------------
Forest & Paper Products - 1.5%
- -----------------------------------------------------------------------------------------------
Bowater, Inc.^ 574,000 $22,288,420
- -----------------------------------------------------------------------------------------------
International Paper Co. 2,298,460 85,847,481
- -----------------------------------------------------------------------------------------------
$108,135,901
- -----------------------------------------------------------------------------------------------
Insurance - 6.2%
- -----------------------------------------------------------------------------------------------
AFLAC, Inc. 993,720 $38,089,288
- -----------------------------------------------------------------------------------------------
Allstate Corp.^ 2,724,610 146,257,065
- -----------------------------------------------------------------------------------------------
Chubb Corp.^ 429,930 34,011,762
- -----------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc.^ 876,175 63,040,791
- -----------------------------------------------------------------------------------------------
MetLife, Inc. 3,788,280 155,471,011
- -----------------------------------------------------------------------------------------------
$436,869,917
- -----------------------------------------------------------------------------------------------
Leisure & Toys - 0.4%
- -----------------------------------------------------------------------------------------------
Hasbro, Inc.^ 1,342,680 $28,357,402
- -----------------------------------------------------------------------------------------------
Machinery & Tools - 2.3%
- -----------------------------------------------------------------------------------------------
Deere & Co. 1,111,696 $79,052,702
- -----------------------------------------------------------------------------------------------
Finning International, Inc. 256,450 6,872,074
- -----------------------------------------------------------------------------------------------
Illinois Tool Works, Inc. 592,700 53,194,825
- -----------------------------------------------------------------------------------------------
Sandvik AB 513,700 22,399,491
- -----------------------------------------------------------------------------------------------
$161,519,092
- -----------------------------------------------------------------------------------------------
Medical Equipment - 0.5%
- -----------------------------------------------------------------------------------------------
Baxter International, Inc. 986,370 $35,173,954
- -----------------------------------------------------------------------------------------------
Oil Services - 1.4%
- -----------------------------------------------------------------------------------------------
GlobalSantaFe Corp.^ 501,280 $18,798,000
- -----------------------------------------------------------------------------------------------
Noble Corp. 1,351,440 77,126,681
- -----------------------------------------------------------------------------------------------
$95,924,681
- -----------------------------------------------------------------------------------------------
Pharmaceuticals - 6.7%
- -----------------------------------------------------------------------------------------------
Abbott Laboratories 1,718,460 $79,031,975
- -----------------------------------------------------------------------------------------------
Eli Lilly & Co. 291,500 16,324,000
- -----------------------------------------------------------------------------------------------
Johnson & Johnson 1,799,470 118,045,232
- -----------------------------------------------------------------------------------------------
Merck & Co., Inc. 3,300,040 104,611,268
- -----------------------------------------------------------------------------------------------
Novartis AG^ 663,600 33,294,315
- -----------------------------------------------------------------------------------------------
Pfizer, Inc. 888,350 23,354,722
- -----------------------------------------------------------------------------------------------
Roche Holdings AG^ 404,900 42,722,007
- -----------------------------------------------------------------------------------------------
Wyeth 1,437,000 58,658,340
- -----------------------------------------------------------------------------------------------
$476,041,859
- -----------------------------------------------------------------------------------------------
Printing & Publishing - 1.8%
- -----------------------------------------------------------------------------------------------
Reed Elsevier PLC 7,317,840 $74,481,367
- -----------------------------------------------------------------------------------------------
Tribune Co.^ 1,292,534 52,644,910
- -----------------------------------------------------------------------------------------------
$127,126,277
- -----------------------------------------------------------------------------------------------
Railroad & Shipping - 1.5%
- -----------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 1,532,110 $77,019,169
- -----------------------------------------------------------------------------------------------
Union Pacific Corp. 433,900 27,530,955
- -----------------------------------------------------------------------------------------------
$104,550,124
- -----------------------------------------------------------------------------------------------
Restaurants - 0.6%
- -----------------------------------------------------------------------------------------------
McDonald's Corp. 1,386,260 $45,857,481
- -----------------------------------------------------------------------------------------------
Specialty Chemicals - 1.4%
- -----------------------------------------------------------------------------------------------
Air Products & Chemicals, Inc.^ 1,352,998 $84,724,735
- -----------------------------------------------------------------------------------------------
Praxair, Inc. 301,180 13,501,899
- -----------------------------------------------------------------------------------------------
$98,226,634
- -----------------------------------------------------------------------------------------------
Specialty Stores - 1.8%
- -----------------------------------------------------------------------------------------------
Gap, Inc.^ 3,387,540 $72,256,228
- -----------------------------------------------------------------------------------------------
TJX Cos., Inc. 2,324,400 56,761,848
- -----------------------------------------------------------------------------------------------
$129,018,076
- -----------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.3%
- -----------------------------------------------------------------------------------------------
Vodafone Group PLC 34,058,670 $89,199,610
- -----------------------------------------------------------------------------------------------
Telephone Services - 3.7%
- -----------------------------------------------------------------------------------------------
Sprint Corp.^ 6,365,980 $150,746,406
- -----------------------------------------------------------------------------------------------
Verizon Communications, Inc. 3,129,060 112,552,288
- -----------------------------------------------------------------------------------------------
$263,298,694
- -----------------------------------------------------------------------------------------------
Tobacco - 3.0%
- -----------------------------------------------------------------------------------------------
Altria Group, Inc. 3,190,050 $209,426,782
- -----------------------------------------------------------------------------------------------
Trucking - 0.1%
- -----------------------------------------------------------------------------------------------
CNF, Inc. 175,580 $8,053,854
- -----------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.7%
- -----------------------------------------------------------------------------------------------
Cinergy Corp. 757,830 $30,654,223
- -----------------------------------------------------------------------------------------------
Dominion Resources, Inc. 1,777,500 128,033,325
- -----------------------------------------------------------------------------------------------
Entergy Corp.^ 397,890 27,502,157
- -----------------------------------------------------------------------------------------------
Exelon Corp. 468,460 21,249,346
- -----------------------------------------------------------------------------------------------
FPL Group, Inc.^ 140,880 11,178,828
- -----------------------------------------------------------------------------------------------
PPL Corp. 622,770 33,965,876
- -----------------------------------------------------------------------------------------------
Public Service Enterprise Group, Inc.^ 495,400 27,024,070
- -----------------------------------------------------------------------------------------------
TXU Corp.^ 683,670 52,129,838
- -----------------------------------------------------------------------------------------------
$331,737,663
- -----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $5,490,800,844) $6,905,487,141
- -----------------------------------------------------------------------------------------------
Short-Term Obligations - 0.4%#
- -----------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------
Citicorp, 2.535%, due 3/14/05 $16,100,000 $16,085,262
- -----------------------------------------------------------------------------------------------
SBC Communications, Inc., 2.52%, due 3/21/05 12,500,000 12,482,500
- -----------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $28,567,762
- -----------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 3.7%
- -----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost
and Net Asset Value 261,187,913 $261,187,913
- -----------------------------------------------------------------------------------------------
Repurchase Agreement - 1.9%
- -----------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------
Goldman Sachs, 2.61%, dated 2/28/05, due 3/01/05, total
to be received $130,707,476 (secured by various U.S.
Treasury and Federal Agency obligations in a jointly
traded account), at Cost $130,698,000 $130,698,000
- -----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $5,911,254,519) $7,325,940,816
- -----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (3.5)% (244,823,180)
- -----------------------------------------------------------------------------------------------
Net Assets - 100.0% $7,081,117,636
- -----------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
# The rate shown represents an annualized yield at time of purchase.
ADR = American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- ---------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/28/05
ASSETS
Investments, at value, including $254,045,295 of
securities on loan (identified cost, $5,911,254,519) $7,325,940,816
- ---------------------------------------------------------------------------------------------------
Cash 484
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 7,817,200
- ---------------------------------------------------------------------------------------------------
Receivable for fund shares sold 17,242,970
- ---------------------------------------------------------------------------------------------------
Interest and dividends receivable 13,003,899
- ---------------------------------------------------------------------------------------------------
Total assets $7,364,005,369
- ---------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $7,156,457
- ---------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 11,728,455
- ---------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 261,187,913
- ---------------------------------------------------------------------------------------------------
Payable to affiliates
- ---------------------------------------------------------------------------------------------------
Management fee 350,991
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 923,994
- ---------------------------------------------------------------------------------------------------
Distribution and service fee 299,469
- ---------------------------------------------------------------------------------------------------
Administrative fee 3,192
- ---------------------------------------------------------------------------------------------------
Program manager fee 84
- ---------------------------------------------------------------------------------------------------
Administrative service fee 74
- ---------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 1,237,104
- ---------------------------------------------------------------------------------------------------
Total liabilities $282,887,733
- ---------------------------------------------------------------------------------------------------
Net assets $7,081,117,636
- ---------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $5,607,849,434
- ---------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 1,414,686,297
- ---------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain on
investments and foreign currency transactions 49,125,934
- ---------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income 9,455,971
- ---------------------------------------------------------------------------------------------------
Net assets $7,081,117,636
- ---------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 301,300,241
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $4,065,457,547
- ---------------------------------------------------------------------------------------------------
Shares outstanding 172,719,864
- ---------------------------------------------------------------------------------------------------
Net asset value per share $23.54
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$23.54) $24.98
- ---------------------------------------------------------------------------------------------------
Class B shares
Net assets $1,304,973,011
- ---------------------------------------------------------------------------------------------------
Shares outstanding 55,773,629
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $23.40
- ---------------------------------------------------------------------------------------------------
Class C shares
Net assets $854,559,007
- ---------------------------------------------------------------------------------------------------
Shares outstanding 36,555,255
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $23.38
- ---------------------------------------------------------------------------------------------------
Class I shares
Net assets $775,496,983
- ---------------------------------------------------------------------------------------------------
Shares outstanding 32,818,403
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $23.63
- ---------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $73,041,149
- ---------------------------------------------------------------------------------------------------
Shares outstanding 3,108,978
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $23.49
- ---------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $3,594,348
- ---------------------------------------------------------------------------------------------------
Shares outstanding 153,234
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $23.46
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class 529A shares
Net assets $2,624,945
- ---------------------------------------------------------------------------------------------------
Shares outstanding 111,964
- ---------------------------------------------------------------------------------------------------
Net asset value per share $23.44
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$23.44) $24.87
- ---------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $563,015
- ---------------------------------------------------------------------------------------------------
Shares outstanding 24,197
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $23.27
- ---------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $807,631
- ---------------------------------------------------------------------------------------------------
Shares outstanding 34,717
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $23.26
- ---------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- ---------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund operations.
SIX MONTHS ENDED 2/28/05
NET INVESTMENT INCOME
Income
- ---------------------------------------------------------------------------------------------------
Dividends $72,986,715
- ---------------------------------------------------------------------------------------------------
Interest 1,670,211
- ---------------------------------------------------------------------------------------------------
Foreign taxes withheld (575,908)
- ---------------------------------------------------------------------------------------------------
Total investment income $74,081,018
- ---------------------------------------------------------------------------------------------------
Expenses
- ---------------------------------------------------------------------------------------------------
Management fee $19,708,945
- ---------------------------------------------------------------------------------------------------
Trustees" compensation 58,148
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 5,103,724
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 6,600,322
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 5,958,716
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 4,012,454
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 148,518
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 3,650
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 3,564
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 2,530
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 3,509
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 2,545
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 633
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 878
- ---------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 1,825
- ---------------------------------------------------------------------------------------------------
Administrative fee 109,009
- ---------------------------------------------------------------------------------------------------
Custodian fee 670,652
- ---------------------------------------------------------------------------------------------------
Printing 417,056
- ---------------------------------------------------------------------------------------------------
Postage 196,551
- ---------------------------------------------------------------------------------------------------
Auditing fees 38,610
- ---------------------------------------------------------------------------------------------------
Legal fees 99,080
- ---------------------------------------------------------------------------------------------------
Miscellaneous 141,460
- ---------------------------------------------------------------------------------------------------
Total expenses $43,282,379
- ---------------------------------------------------------------------------------------------------
Fees paid indirectly (125,676)
- ---------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (20,245)
- ---------------------------------------------------------------------------------------------------
Net expenses $43,136,458
- ---------------------------------------------------------------------------------------------------
Net investment income $30,944,560
- ---------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- ---------------------------------------------------------------------------------------------------
Investment transactions $124,401,124
- ---------------------------------------------------------------------------------------------------
Foreign currency transactions (112,486)
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions $124,288,638
- ---------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- ---------------------------------------------------------------------------------------------------
Investments $669,926,626
- ---------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 5,292
- ---------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and
foreign currency translation $669,931,918
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $794,220,556
- ---------------------------------------------------------------------------------------------------
Change in net assets from operations $825,165,116
- ---------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/28/05 8/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment income $30,944,560 $55,965,886
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 124,288,638 292,885,791
- ---------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 669,931,918 532,786,973
- ------------------------------------------------------ ------------- ---------------
Change in net assets from operations $825,165,116 $881,638,650
- ------------------------------------------------------ ------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- ---------------------------------------------------------------------------------------------------
Class A $(22,048,603) $(38,194,792)
- ---------------------------------------------------------------------------------------------------
Class B (4,346,958) (5,722,598)
- ---------------------------------------------------------------------------------------------------
Class C (2,785,956) (3,678,255)
- ---------------------------------------------------------------------------------------------------
Class I (4,691,196) (6,552,178)
- ---------------------------------------------------------------------------------------------------
Class R1 (299,588) (311,260)
- ---------------------------------------------------------------------------------------------------
Class R2 (4,054) (32)
- ---------------------------------------------------------------------------------------------------
Class 529A (9,221) (10,857)
- ---------------------------------------------------------------------------------------------------
Class 529B (1,469) (843)
- ---------------------------------------------------------------------------------------------------
Class 529C (1,829) (1,583)
- ------------------------------------------------------ ------------- ---------------
Total distributions declared to shareholders $(34,188,874) $(54,472,398)
- ------------------------------------------------------ ------------- ---------------
Change in net assets from fund share transactions $157,030,107 $236,254,134
- ------------------------------------------------------ ------------- ---------------
Redemption fees $11,574 $4,175
- ------------------------------------------------------ ------------- ---------------
Total change in net assets $948,017,923 $1,063,424,561
- ------------------------------------------------------ ------------- ---------------
NET ASSETS
At beginning of period $6,133,099,713 $5,069,675,152
- ---------------------------------------------------------------------------------------------------
At end of period (including accumulated undistributed
net investment income of $9,455,971 and $12,700,285,
respectively) $7,081,117,636 $6,133,099,713
- ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the fund's operation). Certain information reflects financial
results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------------
CLASS A 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $20.88 $18.03 $17.21 $19.28 $19.38 $17.17
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.12 $0.23 $0.24 $0.20 $0.20 $0.24
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency 2.67 2.84 0.81 (2.05) 0.44 2.43
- ----------------------------- ------ ------- ------- ------- ------- -------
Total from investment
operations $2.79 $3.07 $1.05 $(1.85) $0.64 $2.67
- ----------------------------- ------ ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment
income $(0.13) $(0.22) $(0.23) $(0.15) $(0.19) $(0.22)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments and
foreign currency
transactions -- -- -- (0.03) (0.55) (0.24)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on
investments and foreign
currency transactions -- -- -- (0.04) -- --
- ----------------------------- ------ ------- ------- ------- ------- -------
Total distributions
declared to shareholders $(0.13) $(0.22) $(0.23) $(0.22) $(0.74) $(0.46)
- ----------------------------- ------ ------- ------- ------- ------- -------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ----------------------------- ------ ------- ------- ------- ------- -------
Net asset value, end of
period $23.54 $20.88 $18.03 $17.21 $19.28 $19.38
- ----------------------------- ------ ------- ------- ------- ------- -------
Total return (%)(+)& 13.41++ 17.13^^ 6.22 (9.64) 3.19 15.95
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------------
CLASS A (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.15+ 1.18 1.20 1.25 1.21 1.30
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.11+ 1.14 1.41 1.05 1.00 1.38
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 14 42 55 48 63 83
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of
period (000 Omitted) $4,065,458 $3,527,854 $3,039,085 $1,820,568 $981,373 $165,616
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. Through June 30, 2000,
subject to reimbursement by the fund, the investment adviser agreed to maintain expenses of the fund, exclusive of
management, distribution, and service fees, at not more than 0.40% of average daily net assets. To the extent actual
expenses were over this limitation and the reimbursement had not been in place, the net investment income per share and
the ratios would have been:
Net investment income $0.12* $0.23* $-- $-- $-- $0.25
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.15+* 1.18* -- -- -- 1.26
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.11+* 1.14* -- -- -- 1.42
- ------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
(+) Total returns do not include the applicable sales charge. If the charge had been included, the results would have been
lower.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates Footnote. The non-recurring accrual did not have a
material impact on the net asset value per share based on shares outstanding on the day proceeds were recorded. The
proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------------
CLASS B 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $20.77 $17.94 $17.13 $19.19 $19.30 $17.11
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.05 $0.10 $0.12 $0.07 $0.07 $0.13
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency 2.66 2.83 0.81 (2.02) 0.45 2.42
- ----------------------------- ------ ------- ------- ------- ------- -------
Total from investment
operations $2.71 $2.93 $0.93 $(1.95) $0.52 $2.55
- ----------------------------- ------ ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment
income $(0.08) $(0.10) $(0.12) $(0.04) $(0.08) $(0.12)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments and
foreign currency
transactions -- -- -- (0.03) (0.55) (0.24)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on
investments and foreign
currency transactions -- -- -- (0.04) -- --
- ----------------------------- ------ ------- ------- ------- ------- -------
Total distributions
declared to shareholders $(0.08) $(0.10) $(0.12) $(0.11) $(0.63) $(0.36)
- ----------------------------- ------ ------- ------- ------- ------- -------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ----------------------------- ------ ------- ------- ------- ------- -------
Net asset value, end of
period $23.40 $20.77 $17.94 $17.13 $19.19 $19.30
- ----------------------------- ------ ------- ------- ------- ------- -------
Total return (%)& 13.05++ 16.35^^ 5.50 (10.20) 2.55 15.19
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------------
CLASS B (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.80+ 1.82 1.85 1.90 1.86 1.95
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.46+ 0.49 0.76 0.40 0.35 0.73
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 14 42 55 48 63 83
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of
period (000 Omitted) $1,304,973 $1,199,074 $1,069,389 $923,330 $698,338 $125,713
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. Through June 30, 2000,
subject to reimbursement by the fund, the investment adviser agreed to maintain expenses of the fund, exclusive of
management, distribution, and service fees, at not more than 0.40% of average daily net assets. To the extent actual
expenses were over this limitation and the reimbursement had not been in place, the net investment income per share and
the ratios would have been:
Net investment income $0.05* $0.10* $-- $-- $-- $0.14
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.80+* 1.82* -- -- -- 1.91
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.46+* 0.49* -- -- -- 0.77
- ------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates Footnote. The non-recurring accrual did not have a
material impact on the net asset value per share based on shares outstanding on the day proceeds were recorded. The
proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------------
CLASS C 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $20.75 $17.93 $17.12 $19.18 $19.30 $17.10
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.05 $0.10 $0.12 $0.07 $0.07 $0.13
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency 2.66 2.82 0.81 (2.02) 0.44 2.43
- ----------------------------- ------ ------- ------- ------- ------- -------
Total from investment
operations $2.71 $2.92 $0.93 $(1.95) $0.51 $2.56
- ----------------------------- ------ ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment
income $(0.08) $(0.10) $(0.12) $(0.04) $(0.08) $(0.12)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments and
foreign currency
transactions -- -- -- (0.03) (0.55) (0.24)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on
investments and foreign
currency transactions -- -- -- (0.04) -- --
- ----------------------------- ------ ------- ------- ------- ------- -------
Total distributions
declared to shareholders $(0.08) $(0.10) $(0.12) $(0.11) $(0.63) $(0.36)
- ----------------------------- ------ ------- ------- ------- ------- -------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ----------------------------- ------ ------- ------- ------- ------- -------
Net asset value, end of
period $23.38 $20.75 $17.93 $17.12 $19.18 $19.30
- ----------------------------- ------ ------- ------- ------- ------- -------
Total return (%)& 13.07++ 16.32^^ 5.52 (10.21) 2.52 15.27
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------------
CLASS C (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.80+ 1.82 1.85 1.90 1.86 1.95
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.46+ 0.49 0.76 0.40 0.35 0.73
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 14 42 55 48 63 83
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of
period (000 Omitted) $854,559 $761,669 $648,318 $473,537 $366,154 $49,887
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. Through June 30, 2000,
subject to reimbursement by the fund, the investment adviser agreed to maintain expenses of the fund, exclusive of
management, distribution, and service fees, at not more than 0.40% of average daily net assets. To the extent actual
expenses were over this limitation and the reimbursement had not been in place, the net investment income per share and
the ratios would have been:
Net investment income $0.05* $0.10* $-- $-- $-- $0.14
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.80+* 1.82* -- -- -- 1.91
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.46+* 0.49* -- -- -- 0.77
- ------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%,
respectively.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates Footnote. The non-recurring accrual did not have a
material impact on the net asset value per share based on shares outstanding on the day proceeds were recorded. The
proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------------
CLASS I 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $20.95 $18.10 $17.27 $19.35 $19.47 $17.24
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.16 $0.30 $0.30 $0.27 $0.28 $0.30
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency 2.68 2.84 0.82 (2.06) 0.44 2.44
- ----------------------------- ------ ------- ------- ------- ------- -------
Total from investment
operations $2.84 $3.14 $1.12 $(1.79) $0.72 $2.74
- ----------------------------- ------ ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment
income $(0.16) $(0.29) $(0.29) $(0.22) $(0.29) $(0.27)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments and
foreign currency
transactions -- -- -- (0.03) (0.55) (0.24)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on
investments and foreign
currency transactions -- -- -- (0.04) -- --
- ----------------------------- ------ ------- ------- ------- ------- -------
Total distributions
declared to shareholders $(0.16) $(0.29) $(0.29) $(0.29) $(0.84) $(0.51)
- ----------------------------- ------ ------- ------- ------- ------- -------
Redemption fees added to
paid-in capital# $0.00+++ $0.00+++ $-- $-- $-- $--
- ----------------------------- ------ ------- ------- ------- ------- -------
Net asset value, end of
period $23.63 $20.95 $18.10 $17.27 $19.35 $19.47
- ----------------------------- ------ ------- ------- ------- ------- -------
Total return (%)& 13.61++ 17.47^^ 6.61 (9.35) 3.58 16.36
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -------------------------------------------------------------------------------
CLASS I (CONTINUED) 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.80+ 0.83 0.85 0.90 0.86 0.95
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.46+ 1.50 1.76 1.40 1.35 1.65
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 14 42 55 48 63 83
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of
period (000 Omitted) $775,497 $593,364 $296,961 $76,932 $45,849 $34,189
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. Through June 30, 2000,
subject to reimbursement by the fund, the investment adviser agreed to maintain expenses of the fund, exclusive of
management, distribution, and service fees, at not more than 0.40% of average daily net assets. To the extent actual
expenses were over this limitation and the reimbursement had not been in place, the net investment income per share and
the ratios would have been:
Net investment income $0.16* $0.30* $-- $-- $-- $0.31
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.80+* 0.83* -- -- -- 0.91
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.46+* 1.50* -- -- -- 1.69
- ------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates Footnote. The non-recurring accrual did not have a
material impact on the net asset value per share based on shares outstanding on the day proceeds were recorded. The
proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 2/28/05 8/31/04 8/31/03**
(UNAUDITED)
Net asset value, beginning of period $20.84 $18.01 $16.53***
- ----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.11 $0.21 $0.15
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 2.66 2.82 1.45
- ----------------------------------------------------- ------- ------- -------
Total from investment operations $2.77 $3.03 $1.60
- ----------------------------------------------------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.12) $(0.20) $(0.12)
- ----------------------------------------------------- ------- ------- -------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $--
- ----------------------------------------------------- ------- ------- -------
Net asset value, end of period $23.49 $20.84 $18.01
- ----------------------------------------------------- ------- ------- -------
Total return (%)& 13.33++ 16.92^^ 9.76++***
- ----------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R1 (CONTINUED) 2/28/05 8/31/04 8/31/03**
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.30+ 1.33 1.42+
- ----------------------------------------------------------------------------------------------------------------
Net investment income 0.96+ 1.02 1.26+
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover 14 42 55
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $73,041 $47,970 $14,583
- ----------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of substantially all of Independent Chief Compliance Officer service fees paid to
Tarantino LLC. If this fee had been incurred by the fund, the net investment income per share and the
ratios would have been:
Net investment income $0.11* $0.21* $--
- ----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.30+* 1.33* --
- ----------------------------------------------------------------------------------------------------------------
Net investment income 0.96+* 1.02* --
- ----------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
** For the period from the inception of Class R1 shares, December 31, 2002, through August 31, 2003.
*** The net asset value and total return previously reported as $16.52 and 9.82%, respectively, has been
revised to reflect the net asset value from the day prior to the class" inception date. The net asset value
and total return previously reported was from the inception date, the date the share class was first
available to public shareholders.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a
result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection
with fund sales, as described in the Legal Proceedings and Transactions with Affiliates Footnote. The
non-recurring accrual did not have a material impact on the net asset value per share based on shares
outstanding on the day proceeds were recorded. The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance
would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED PERIOD ENDED
CLASS R2 2/28/05 8/31/04**
(UNAUDITED)
Net asset value, beginning of period $20.84 $18.73***
- ---------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.07 $0.11
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.67 2.12
- -------------------------------------------------------------- ------- -------
Total from investment operations $2.74 $2.23
- -------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.12) $(0.12)
- -------------------------------------------------------------- ------- -------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++
- -------------------------------------------------------------- ------- -------
Net asset value, end of period $23.46 $20.84
- -------------------------------------------------------------- ------- -------
Total return (%)& 13.21++ 11.93++^^***
- ---------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED PERIOD ENDED
CLASS R2 (CONTINUED) 2/28/05 8/31/04**
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.55+ 1.59+
- ---------------------------------------------------------------------------------------------------
Net investment income 0.68+ 0.80+
- ---------------------------------------------------------------------------------------------------
Portfolio turnover 14 42
- ---------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $3,594 $414
- ---------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund
for its proportional share of substantially all of Independent Chief Compliance Officer
service fees paid to Tarantino LLC. If this fee had been incurred by the fund, the net
investment income per share and the ratios would have been:
Net investment income $0.07* $0.11*
- ---------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.55+* 1.59*+
- ---------------------------------------------------------------------------------------------------
Net investment income 0.68+* 0.80*+
- ---------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
** For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
*** The net asset value and total return previously reported as $18.80 and 11.52%, respectively,
has been revised to reflect the net asset value from the day prior to the class" inception
date. The net asset value and total return previously reported was from the inception date,
the date the share class was first available to public shareholders.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include a non-recurring accrual
recorded as a result of an administrative proceeding regarding disclosure of brokerage
allocation practices in connection with fund sales, as described in the Legal Proceedings and
Transactions with Affiliates Footnote. The non-recurring accrual did not have a material
impact on the net asset value per share based on shares outstanding on the day proceeds were
recorded. The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which
performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------- PERIOD ENDED
CLASS 529A 2/28/05 2004 2003 8/31/02**
(UNAUDITED)
Net asset value, beginning of period $20.80 $18.00 $17.21 $16.84***
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.09 $0.18 $0.20 $0.03
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.66 2.80 0.81 0.34
- ---------------------------------------- ------- ------- ------- -------
Total from investment operations $2.75 $2.98 $1.01 $0.37
- ---------------------------------------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.11) $(0.18) $(0.22) $--
- ---------------------------------------- ------- ------- ------- -------
Redemption fees added to paid-in
capital# $0.00+++ $0.00+++ $-- $--
- ---------------------------------------- ------- ------- ------- -------
Net asset value, end of period $23.44 $20.80 $18.00 $17.21
- ---------------------------------------- ------- ------- ------- -------
Total return (%)(+)& 13.26++ 16.63^^ 5.98 2.20++***
- ------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------- PERIOD ENDED
CLASS 529A (CONTINUED) 2/28/05 2004 2003 8/31/02**
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.40+ 1.43 1.48 1.50+
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 0.85+ 0.91 1.20 2.23+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 14 42 55 48
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $2,625 $1,673 $806 $10
- ------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional
share of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee
had been incurred by the fund, the net investment income per share and the ratios would have been:
Net investment income $0.09* $0.18* $-- $--
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.40+* 1.43* -- --
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 0.85+* 0.91* -- --
- ------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
** For the period from the inception of Class 529A shares, July 31, 2002, through August 31, 2002.
*** The net asset value and total return previously reported as $17.01 and 1.18%, respectively, has been revised to
reflect the net asset value from the day prior to the class" inception date. The net asset value and total return
previously reported was from the inception date, the date the share class was first available to public
shareholders.
(+) Total returns do not include applicable sales charge. If the charge had been included, the results would have been
lower.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates Footnote. The non-recurring accrual did not
have a material impact on the net asset value per share based on shares outstanding on the day proceeds were
recorded. The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------- PERIOD ENDED
CLASS 529B 2/28/05 2004 2003 8/31/02**
(UNAUDITED)
Net asset value, beginning of period $20.67 $17.87 $17.12 $16.76***
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.02 $0.05 $0.09 $0.02
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.64 2.81 0.80 0.34
- ---------------------------------------- ------- ------- ------- -------
Total from investment operations $2.66 $2.86 $0.89 $0.36
- ---------------------------------------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.06) $(0.06) $(0.14) $--
- ---------------------------------------- ------- ------- ------- -------
Redemption fees added to paid-in
capital# $0.00+++ $0.00+++ $-- $--
- ---------------------------------------- ------- ------- ------- -------
Net asset value, end of period $23.27 $20.67 $17.87 $17.12
- ---------------------------------------- ------- ------- ------- -------
Total return (%)& 12.91++ 16.03^^ 5.29 2.15++***
- ------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------- PERIOD ENDED
CLASS 529B (CONTINUED) 2/28/05 2004 2003 8/31/02**
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.05+ 2.07 2.13 2.15+
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 0.21+ 0.27 0.52 1.33+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 14 42 55 48
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $563 $439 $181 $6
- ------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional
share of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee
had been incurred by the fund, the net investment income per share and the ratios would have been:
Net investment income $0.02* $0.05* $-- $--
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.05+* 2.07* -- --
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 0.21+* 0.27* -- --
- ------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
** For the period from the inception of Class 529B shares, July 31, 2002, through August 31, 2002.
*** The net asset value and total return previously reported as $16.93 and 1.12%, respectively, has been revised to
reflect the net asset value from the day prior to the class" inception date. The net asset value and total return
previously reported was from the inception date, the date the share class was first available to public
shareholders.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates Footnote. The non-recurring accrual did not
have a material impact on the net asset value per share based on shares outstanding on the day proceeds were
recorded. The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------- PERIOD ENDED
CLASS 529C 2/28/05 2004 2003 8/31/02**
(UNAUDITED)
Net asset value, beginning of period $20.66 $17.86 $17.11 $16.75***
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.02 $0.05 $0.09 $0.02
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.64 2.81 0.80 0.34
- ---------------------------------------- ------- ------- ------- -------
Total from investment operations $2.66 $2.86 $0.89 $0.36
- ---------------------------------------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.06) $(0.06) $(0.14) $--
- ---------------------------------------- ------- ------- ------- -------
Redemption fees added to paid-in
capital# $0.00+++ $0.00+++ $-- $--
- ---------------------------------------- ------- ------- ------- -------
Net asset value, end of period $23.26 $20.66 $17.86 $17.11
- ---------------------------------------- ------- ------- ------- -------
Total return (%)& 12.88++ 16.03^^ 5.31 2.15++***
- ------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------- PERIOD ENDED
CLASS 529C (CONTINUED) 2/28/05 2004 2003 8/31/02**
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.05+ 2.07 2.13 2.15+
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 0.22+ 0.26 0.55 1.75+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 14 42 55 48
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $808 $643 $352 $21
- ------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional
share of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee
had been incurred by the fund, the net investment income per share and the ratios would have been:
Net investment income $0.02* $0.05* $-- $--
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.05+* 2.07* -- --
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 0.22+* 0.26* -- --
- ------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
** For the period from the inception of Class 529C shares, July 31, 2002, through August 31, 2002.
*** The net asset value and total return previously reported as $16.92 and 1.12%, respectively, has been revised to
reflect the net asset value from the day prior to the class" inception date. The net asset value and total return
previously reported was from the inception date, the date the share class was first available to public
shareholders.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates Footnote. The non-recurring accrual did not
have a material impact on the net asset value per share based on shares outstanding on the day proceeds were
recorded. The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Value Fund (the fund) is a diversified series of MFS Series Trust I (the
trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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. Money market
mutual funds are valued at net asset value. Investment valuations, other
assets, and liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars based upon current exchange rates. 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.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the fund with indemnification against Borrower default. The
fund bears the risk of loss with respect to the investment of cash collateral.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or short-term securities. A portion of the income generated upon
investment of the collateral is remitted to the Borrowers, and the remainder is
allocated between the fund and the lending agent. On loans collateralized by
U.S. Treasury securities, a fee is received from the Borrower, and is allocated
between the fund and the lending agent. Income from securities lending is
included in interest income on the Statement of Operations. The dividend and
interest income earned on the securities loaned is accounted for in the same
manner as other dividend and interest income.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, 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). Effective April 1, 2005, the fund will no longer charge
a redemption fee. See the fund's prospectus for details. Any redemption fees
charged 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.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the statement of operations, or in unrealized gain/loss if the security is
still held by the fund.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. During the six months ended February 28, 2005, the fund's custodian fees
were reduced by $76,921 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the six months ended February 28, 2005, the fund's miscellaneous
expenses were reduced by $48,755 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 and real estate investment trusts.
The tax character of distributions declared for the years ended August 31, 2004
and August 31, 2003 was as follows:
8/31/04 8/31/03
Distributions declared from:
----------------------------------------------------------
Ordinary income $54,471,492 $43,338,408
----------------------------------------------------------
As of August 31, 2004 the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $12,712,749
----------------------------------------------------------
Capital loss carryforward (50,224,703)
----------------------------------------------------------
Unrealized appreciation (depreciation) 719,816,378
----------------------------------------------------------
Other temporary differences (12,464)
----------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on August 31, 2011, $(50,224,703).
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 MFS to
provide overall investment advisory and administrative services, and general
office facilities. The management fee is computed daily and paid monthly at an
annual rate of 0.60% of the fund's average daily net assets. Effective
September 1, 2004, MFS has agreed to a voluntary reduction in its management
fee to an annual rate of 0.55% on net assets in excess of $7.5 billion. This
fee reduction arrangement may only be changed with approval by the Board of
Trustees which oversees the fund.
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). The fund has an
unfunded defined benefit plan for retired Independent Trustees. Included in
Trustees" compensation is a pension expense of $621 for retired Independent
Trustees for the six months ended February 28, 2005.
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. On July 28,
2004, the fund accrued an estimate of the amount to be received pursuant to
this matter in the amount of $1,390,632, which 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. The proceeds were paid to the fund on February 16,
2005.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. 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. The
fund paid MFS an administrative fee up to the following annual percentage rates
of the fund's average daily net assets:
BEGINNING OF
PERIOD THROUGH
EFFECTIVE DATE 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
- -------------------------------------------------------------------------
Next $2.5 billion 0.00832% 0.01206%
- -------------------------------------------------------------------------
Next $2.5 billion 0.00032% 0.00056%
- -------------------------------------------------------------------------
In excess of $7 billion 0.00000% 0.00000%
- -------------------------------------------------------------------------
The March 1, 2005 rates were not effective during the current reporting period.
For the six months ended February 28, 2005, the fund paid MFS $109,009
equivalent to 0.00332% 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
$221,531 and $1,641 for the six months ended February 28, 2005, 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 as compensation for services provided by MFD and financial
intermediaries in connection with the distribution and servicing of its
shares. One component of the plan is a distribution fee and another is a
service fee paid by MFD to financial intermediaries that enter into sales or
service agreements with MFD or its affiliates based on the average daily net
assets of accounts attributable to such intermediaries. 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 may retain all or a portion of the service fee, including for accounts for
which there is no financial intermediary of record. Service fees retained by
MFD for the six months ended February 28, 2005 amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by
MFD $214,838 $2,526 $5,115 $-- $14
- --------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by
MFD $454 $8 $33
- --------------------------------------------------------------------------------
Payment of the 0.15% per annum portion of the Class 529A distribution fee that
is not currently being charged will be implemented on such date as the
Trustees of the Trust may determine.
Fees incurred under the distribution plan during the six months ended February
28, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual
Percentage Rates 0.35% 1.00% 1.00% 0.50% 0.50%
- --------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Effective Annual
Percentage Rates 0.35% 1.00% 1.00%
- --------------------------------------------------------------------------------
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within, for
Class A shares, 12 months following the purchase, and, for Class C and Class
529C shares, the first year 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 of purchase. MFD receives
all contingent deferred sales charges. Contingent deferred sales charges
imposed during the six months ended February 28, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred Sales
Charges Imposed $48,761 $1,150,406 $45,341 $-- $--
- --------------------------------------------------------------------------------
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. For the beginning of the period through December 31, 2004, the
fund was charged up to 0.0861% of its average daily net assets. For the period
January 1, 2005 through February 28, 2005, the fund is charged up to 0.1035% of
its average daily net assets. For the six months ended February 28, 2005, the
fund paid MFSC a fee of $3,006,541 for shareholder services which equated to
0.0915% of the fund's average daily net assets. Effective March 1, 2005, the
fund is charged up to 0.1159% of its average daily net assets. Shareholder
service costs include out of pocket expenses and sub accounting services
expenses paid by MFSC on behalf of the fund and subsequently reimbursed to MFSC
which amounted to $1,172,192, and other costs paid by the fund directly to
unaffiliated vendors for the six months ended February 28, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,008,627,568 and $877,626,729, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $5,936,192,520
------------------------------------------------------------
Gross unrealized appreciation $1,467,988,975
------------------------------------------------------------
Gross unrealized depreciation (78,240,679)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $1,389,748,296
------------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 26,640,506 $593,651,618 68,232,846 $1,362,862,519
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 839,122 18,334,167 1,607,195 31,479,055
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (23,743,644) (529,253,915) (69,376,970) (1,396,340,338)
- ----------------------------------------------------------------------------------------------------------
Net change 3,735,984 $82,731,870 463,071 $(1,998,764)
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 3,871,402 $85,547,111 10,609,786 $210,964,746
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 159,471 3,488,030 235,102 4,573,746
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (5,991,599) (132,935,827) (12,715,831) (254,097,701)
- ----------------------------------------------------------------------------------------------------------
Net change (1,960,726) $(43,900,686) (1,870,943) $(38,559,209)
- ----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 3,471,007 $76,826,314 9,335,624 $184,215,208
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 81,449 1,780,087 120,898 2,350,259
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (3,702,373) (81,862,261) (8,914,773) (179,025,392)
- ----------------------------------------------------------------------------------------------------------
Net change (149,917) $(3,255,860) 541,749 $7,540,075
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 5,003,999 $111,055,555 14,195,841 $284,193,397
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 207,329 4,540,867 310,207 6,162,008
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (716,693) (15,953,591) (2,592,198) (52,439,449)
- ----------------------------------------------------------------------------------------------------------
Net change 4,494,635 $99,642,831 11,913,850 $237,915,956
- ----------------------------------------------------------------------------------------------------------
CLASS R1 SHARES
Shares sold 1,199,441 $26,701,309 2,778,893 $55,557,730
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 12,409 271,604 14,631 292,053
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (404,516) (9,054,861) (1,301,372) (26,054,689)
- ----------------------------------------------------------------------------------------------------------
Net change 807,334 $17,918,052 1,492,152 $29,795,094
- ----------------------------------------------------------------------------------------------------------
Six months ended 2/28/05 Period ended 8/31/04*
SHARES AMOUNT SHARES AMOUNT
CLASS R2 SHARES
Shares sold 200,752 $4,571,782 37,734 $762,333
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 183 4,044 2 32
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (67,566) (1,539,739) (17,871) (360,775)
- ----------------------------------------------------------------------------------------------------------
Net change 133,369 $3,036,087 19,865 $401,590
- ----------------------------------------------------------------------------------------------------------
Six months ended 2/28/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 39,474 $896,752 37,997 $768,227
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 423 9,221 549 10,840
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (8,337) (192,415) (2,961) (60,562)
- ----------------------------------------------------------------------------------------------------------
Net change 31,560 $713,558 35,585 $718,505
- ----------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 2,993 $64,356 12,295 $245,830
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 67 1,469 43 843
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (88) (2,020) (1,231) (25,198)
- ----------------------------------------------------------------------------------------------------------
Net change 2,972 $63,805 11,107 $221,475
- ----------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 4,910 $110,002 16,679 $325,595
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 83 1,826 82 1,583
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (1,422) (31,378) (5,336) (107,766)
- ----------------------------------------------------------------------------------------------------------
Net change 3,571 $80,450 11,425 $219,412
- ----------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003, through August 31, 2004.
The fund is one of several MFS mutual funds in which the MFS Asset Allocation
Funds may invest. The MFS Asset Allocation Funds do not invest in the
underlying MFS funds for the purpose of exercising management or control. At
the end of the period, the MFS Aggressive Growth Allocation Fund, MFS
Conservative Allocation Fund, MFS Growth Allocation Fund, and MFS Moderate
Allocation Fund were the owners of record of approximately 1%, 1%, 3% and 3%,
respectively, of the total outstanding shares.
(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 six months ended February 28, 2005 was $22,861,
and is included in miscellaneous expense. The fund had no significant
borrowings during the six months ended February 28, 2005.
(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. 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 intermediaries who support the sale of MFS
fund shares. 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. The
final distribution plan was approved by the SEC on January 21, 2005 and the
affected MFS funds received the payment on February 16, 2005.
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 open-end retail fund ("MFS
retail funds") 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 they
prohibited market timing, MFS did not limit trading activity in 11 domestic
large cap stock, high grade bond and money market retail funds. MFS' former
Chief Executive Officer and former President 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. These individuals 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, MFS Fund Distributors, Inc., MFS Service Center,
Inc., MFS Corporation Retirement Committee, Sun Life Financial Inc., various
MFS funds, certain current and/or former 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 ERISA
actions by participants in certain retirement plan accounts on behalf of those
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, Allianz Dresdner),
No. 1:04-md-15863 (transfer began March 19, 2004)). The market timing cases
related to the MFS complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM
(direct), Hammerslough v. MFS et al., Case No. 04-md-01620 (derivative) and
Anita Walker v. MFS et al., Case No. 1:04-CV-01758 (ERISA). The plaintiffs in
these consolidated lawsuits generally seek injunctive relief including removal
of the named Trustees, adviser and distributor, rescission of contracts and
12b-1 Plans, disgorgement of fees and profits, monetary damages, punitive
damages, attorney's fees and costs and other equitable and declaratory relief.
Two 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) (a consolidated action) and Marcus Dumond, et al. v. Massachusetts
Financial Servs. Co., et al., No. 04cv11458 (GAO)). The plaintiffs in these
lawsuits generally seek compensatory damages, punitive damages, recovery of
fees, rescission of contracts, an accounting, restitution, declaratory relief,
equitable and/or injunctive relief and attorney's fees and costs. The various
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 (ii) received excessive compensation as fiduciaries to the MFS funds,
or (iii) 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. 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 certain 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 distributed $50 million 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.
- -------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
- -------------------------------------------------------------------------------
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.
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.
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
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
EIF-SEM-04/05 313M
MFS(R) Mutual Funds 2/28/05
SEMIANNUAL REPORT
MFS(R) CASH RESERVE FUND
A path for pursuing opportunity
[Graphic Omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) CASH RESERVE FUND
The fund seeks as high a level of current income as is considered consistent
with the preservation of capital and liquidity.
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
TABLE OF CONTENTS
LETTER FROM THE CEO 1
------------------------------------------------------
PORTFOLIO COMPOSITION 4
------------------------------------------------------
MANAGEMENT REVIEW 5
------------------------------------------------------
PERFORMANCE SUMMARY 7
------------------------------------------------------
EXPENSE TABLE 10
------------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
------------------------------------------------------
FINANCIAL STATEMENTS 14
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 24
------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 35
------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 35
------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 36
------------------------------------------------------
CONTACT INFORMATION BACK COVER
------------------------------------------------------
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Last summer and fall, I wrote to you about enhancements that MFS(R) was making
to its investment process. Our goal, as always, was to deliver strong
performance across all asset classes. I am now happy to report to you that 2004
was a very successful year for MFS, relative to our peers in the mutual fund
industry. While there will always be room for improvement, we believe the
enhancements we have made to our investment process resulted in significantly
improved performance across the MFS Family of Funds(R).
You may remember some of the enhancements I outlined last year.
They included
o increasing collaboration and information sharing among our investment
personnel across asset classes, through an Investment Management Committee
with members from our Domestic Equity, International Equity, Fixed Income,
and Quantitative Research teams
o increasing the number of analysts supporting our portfolio managers and
doubling the average investment experience of our domestic equity analyst
staff
o making additional use of our most-seasoned portfolio managers to mentor
research analysts
o combining more quantitative, top-down risk control and security analysis
with our traditional bottom-up research process
o opening a research office in Mexico City to complement our existing staff
in Boston, London, Singapore, and Tokyo
The effect of these enhancements, I believe, is evident in the 2004 performance
of our funds. For the 12 months ended December 31, 2004, 80% of MFS domestic
equity funds, 100% of MFS international equity funds, and 80% of MFS fixed-
income funds delivered results in the top half of their Lipper peer groups.
Our longer-term performance also benefited from our ongoing commitment to the
MFS Original Research(R) process: more than 75% of MFS funds were in the top
half of their respective Lipper categories over the 3-, 5-, and 10-year periods
ended December 31, 2004.
Of course, I cannot offer any guarantees that our performance will repeat
itself. Still, I am confident that the recent enhancements to our investment
process will continue to benefit shareholders in 2005 and beyond.
What I can tell you with certainty is that the way you manage your investments
will determine how well you take advantage of the performance that financial
markets deliver. Historically, individual investors have tended to underperform
the markets. For example, a 2003 study by DALBAR, Inc. showed that over the
nearly two decades from 1984 through 2002, the average U.S. stock investor
earned a 2.6% average annual return at a time when U.S. stocks, as measured by
the Standard & Poor's 500 Stock Index, delivered a 12.2% average annual
return.(1)
This huge discrepancy, in our view, occurred because nonprofessional investors
generally did not adhere to the basic principles followed by most professional
investors: allocate among asset classes, diversify within each asset class, and
rebalance one's portfolio on a routine schedule. I elaborated on this "ADR"
theme in fund reports over the last few months of 2004. For more information on
how to apply a Disciplined Diversification(SM) strategy to your portfolio using
the principles of ADR, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Web site, MFS.COM.
As always, we appreciate your confidence in MFS, and you can be sure of our
continued commitment to do the best we can to help you pursue your long-term
financial goals.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management
April 15, 2005
It is not possible to invest directly in an index.
Lipper rankings and performance are based on historical average annual returns
of Class A shares, and do not include any sales charges. Past performance is no
guarantee of future results.
Asset allocation and diversification cannot guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
(1) Source: DALBAR July 2003 update to its Quantitative Analysis of Investment
Behavior; DALBAR, Inc., is a financial-services market research firm
headquartered in Boston, MA.
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
PORTFOLIO STRUCTURE*
Commercial Paper 89.7%
U.S. Government Agencies 4.2%
Certificates of Deposit 3.9%
Repurchase Agreements 2.5%
Other Assets Less Liabilities -0.3%
MATURITY BREAKDOWN*
0 to 29 days 57.5%
------------------------------------------
30 to 59 days 24.8%
------------------------------------------
60 to 89 days 18.0%
------------------------------------------
Other assets less liabilities -0.3%
------------------------------------------
SHORT TERM CREDIT**
Average Quality Short Term Bonds*** A-1
------------------------------------------
All holdings are rated "A-1"
------------------------------------------
* Both accrued interest on bonds and the equivalent exposure from any
derivative holdings, if applicable are included in this graphical
presentation.
** Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. If not rated by any of the three
agencies, the security is considered Not Rated. U.S. Treasuries and U.S.
Agency securities are included in the "A-1"-rating category. Percentages
are based on the total market value of investments as of 2/28/05.
*** The Portfolio Average Credit Quality rating is based upon a market weighted
average of portfolio holdings.
From time to time, "Other Assets Less Liabilities" may be negative due to
timing of cash receipts.
Percentages are based on net assets as of 2/28/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
SUMMARY OF RESULTS
For the six months ended February 28, 2005, Class A shares of the MFS Cash
Reserve Fund provided a total return of 0.80%. At period-end, the fund's
seven-day yield for Class A shares with waiver was 2.16% and without waiver was
1.76%. The yield quotation is based on the latest seven days ended with
dividends annualized, and more closely reflects the fund's current earnings
than does the total return quotation. The fund's investment objective is to
seek as high a level of current income as is considered consistent with the
preservation of capital and liquidity. The fund primarily invests in money
market instruments, which are short-term notes or other debt securities issued
by banks or other corporations, or the U.S. government or other governmental
entities. Under normal market conditions, the fund invests at least 80% of its
net assets in U.S. government securities, repurchase agreements collateralized
by U.S. government securities, certificates of deposit, bankers" acceptances
and other bank obligations, commercial paper, and other short-term obligations.
FACTORS IMPACTING PERFORMANCE
For the period as a whole, the U.S. yield curve flattened as interest rates on
the short end of the curve moved up while rates on the long end were flat to
down.
During the period, we maintained our weighted average maturity position for the
fund, thus ending the period with a maturity of 33 days. Essentially, we
positioned the portfolio in such a way as to minimize our interest rate risk as
we anticipated that short-term rates would continue to rise for some time.
At the start of the period, the portfolio was impacted by a short supply of
commercial paper in the market but, by the second half of the period, companies
began to increase their issuance of short-term commercial paper as favorable
economic reports were released and corporate spending increased.
FUND POSITIONING
As of period-end on February 28, 2005, approximately 89% of the fund's net
assets were invested in high-quality commercial paper. The balance of the
portfolio was invested in discount agency notes, certificates of deposit, and
repurchase agreements collateralized by U.S. government agency notes.
Respectfully,
/s/ Edward L. O'Dette /s/ Terri A. Vittozzi
Edward L. O'Dette Terri A. Vittozzi
Portfolio Manager Portfolio Manager
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or 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.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 2/28/05
- -------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided total returns as well as the current 7-day yield for the applicable
time periods. Performance results reflect the percentage change in net asset
value, including the reinvestment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
An investment in the portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
portfolio seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the portfolio.
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. HIGH
SHORT-TERM RETURNS FOR ANY PERIOD MAY BE AND LIKELY WERE ATTRIBUTABLE TO
FAVORABLE MARKET CONDITIONS DURING THAT PERIOD, WHICH MAY NOT BE REPEATABLE.
THE PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TOTAL RETURNS
CURRENT
6 MONTH CURRENT 7-DAY YIELD
CLASS INCEPTION TOTAL RETURN 7-DAY YIELD WITHOUT WAIVER
A 9/7/93 0.80% 2.16% 1.76%
- ------------------------------------------------------------------------------
B 12/29/86 0.30% 1.16% 0.76%
- ------------------------------------------------------------------------------
C 4/1/96 0.30% 1.16% 0.76%
- ------------------------------------------------------------------------------
529A 7/31/02 0.68% 1.91% 1.16%
- ------------------------------------------------------------------------------
529B 7/31/02 0.20% 0.91% 0.51%
- ------------------------------------------------------------------------------
529C 7/31/02 0.20% 0.91% 0.51%
- ------------------------------------------------------------------------------
Yields are based on the latest seven days ended as of February 28, 2005, with
dividends annualized. The yield quotation more closely reflects the current
earnings of the fund than the total return quotation.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A share results reflect the fact that they have no sales charge.
Class B and 529B results reflect the deduction of the applicable contingent
deferred sales charge (CDSC), which declines over six years from 4% to 0%.
Class C and 529C results (assuming redemption within one year from the end of
the prior month of purchase) reflect the deduction of the 1% CDSC. Class 529A,
529B, 529C shares are only available in conjunction with qualified tuition
programs, such as the MFS 529 Savings Plan. 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.
Unless otherwise indicated, performance results reflect any applicable expense
subsidies and waivers in effect during the periods shown. Subsidies and fee
waivers may be imposed to enhance a portfolio's yield during periods when the
portfolio's operating expenses have a significant impact on the portfolio's
yield due to lower interest rates. Without such subsidies and waivers the
portfolio's performance results would be less favorable. Please see the
prospectus and financial statements for complete details.
KEY RISK CONSIDERATIONS
Money market instruments provide opportunities for income with low credit risk,
but may result in a lower yield than would be available from debt obligations
of a lower quality or longer term. Investors should note that while securities
issued by certain U.S. government agencies or instrumentalities are guaranteed
by the U.S. government, securities issued by many U.S. government agencies are
not guaranteed by the U.S. government.
The portfolio may invest in foreign and/or emerging markets securities, which
are more susceptible to risks relating to interest rates, currency exchange
rates, economic, and political conditions.
The portfolio may invest in municipal bonds that are general obligations backed
by the full faith and credit of the municipal issuer. The portfolio may also
invest in municipal bonds called revenue obligations which are subject to a
higher degree of credit risk than general obligations. The prices of the
securities will decline when interest rates rise, and increase when rates fall.
In addition, municipal securities are subject to credit (failure to make timely
principal or interest payments) and maturity (longer maturity dates increase
security price fluctuations) risks.
Please see the prospectus for further information regarding these and other
risk considerations.
- -------------------------------------------------------------------------------
EXPENSE TABLE
- -------------------------------------------------------------------------------
FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM
SEPTEMBER 1, 2004, THROUGH FEBRUARY 28, 2005.
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, September 1, 2004 through February
28, 2005.
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
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 9/01/04-
Ratio 9/01/04 2/28/05 2/28/05
- --------------------------------------------------------------------------------
Actual 0.46% $1,000 $1,008 $2.29
A ------------------------------------------------------------------------
Hypothetical* 0.46% $1,000 $1,023 $2.31
- --------------------------------------------------------------------------------
Actual 1.46% $1,000 $1,003 $7.25
B -------------------------------------------------------------------------
Hypothetical* 1.46% $1,000 $1,018 $7.31
- --------------------------------------------------------------------------------
Actual 1.46% $1,000 $1,003 $7.25
C ------------------------------------------------------------------------
Hypothetical* 1.46% $1,000 $1,018 $7.31
- --------------------------------------------------------------------------------
Actual 0.71% $1,000 $1,007 $3.53
529A ------------------------------------------------------------------------
Hypothetical 0.71% $1,000 $1,021 $3.56
- --------------------------------------------------------------------------------
Actual 1.68% $1,000 $1,002 $8.34
529B ------------------------------------------------------------------------
Hypothetical 1.68% $1,000 $1,016 $8.40
- --------------------------------------------------------------------------------
Actual 1.68% $1,000 $1,002 $8.34
529C ------------------------------------------------------------------------
Hypothetical 1.68% $1,000 $1,016 $8.40
- --------------------------------------------------------------------------------
* 5% class return per year before expenses.
** 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 (unaudited) - 2/28/05
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Certificates of Deposit - 3.9%
- ----------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ----------------------------------------------------------------------------------------------
Societe Generale NA, Inc., 2.78%, due 5/23/05,
at Amortized Cost and Value $18,130,000 $18,130,000
- ----------------------------------------------------------------------------------------------
Commercial Paper - 89.7%<
- ----------------------------------------------------------------------------------------------
American Express Credit Corp., 2.48%, due 3/14/05 $12,000,000 $11,989,253
- ----------------------------------------------------------------------------------------------
American General Finance Corp., 2.52%, due 3/24/05 555,000 554,106
- ----------------------------------------------------------------------------------------------
Bank of America Corp., 2.62%, due 4/11/05 8,000,000 7,976,129
- ----------------------------------------------------------------------------------------------
Barton Capital LLC, 2.54%, due 3/16/05 19,030,000 19,009,860
- ----------------------------------------------------------------------------------------------
Blue Ridge Asset Funding, 2.47%, due 3/07/05 19,886,000 19,877,814
- ----------------------------------------------------------------------------------------------
CRC Funding LLC, 2.48%, due 3/21/05 17,510,000 17,485,875
- ----------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, 2.55%, due 3/11/05 4,190,000 4,187,032
- ----------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, 2.53%, due 3/24/05 15,495,000 15,469,954
- ----------------------------------------------------------------------------------------------
Citicorp, 2.535%, due 3/10/05 19,670,000 19,657,534
- ----------------------------------------------------------------------------------------------
Dexia Delaware LLC, 2.34%, due 3/02/05 20,829,000 20,827,646
- ----------------------------------------------------------------------------------------------
Edison Asset Securitization LLC, 2.53%, due 3/28/05 16,160,000 16,129,336
- ----------------------------------------------------------------------------------------------
FCAR Owner Trust, 2.46%, due 3/07/05 17,510,000 17,502,821
- ----------------------------------------------------------------------------------------------
Falcon Asset Securitization Corp., 2.6%, due 3/28/05 10,000,000 9,980,500
- ----------------------------------------------------------------------------------------------
General Electric Capital Corp., 2.75%, due 5/18/05 19,020,000 18,906,673
- ----------------------------------------------------------------------------------------------
Govco, Inc., 2.63%, due 4/25/05 7,000,000 6,971,874
- ----------------------------------------------------------------------------------------------
Govco, Inc., 2.75%, due 5/17/05 6,575,000 6,536,326
- ----------------------------------------------------------------------------------------------
HBOS Treasury Services PLC, 2.79%, due 5/24/05 19,010,000 18,886,245
- ----------------------------------------------------------------------------------------------
ING America Insurance Holdings, Inc., 2.57%, due 4/05/05 6,480,000 6,463,809
- ----------------------------------------------------------------------------------------------
ING America Insurance Holdings, Inc., 2.47%, due 4/14/05 13,400,000 13,359,547
- ----------------------------------------------------------------------------------------------
Jupiter Securitization Corp., 2.53%, due 3/09/05 6,040,000 6,036,604
- ----------------------------------------------------------------------------------------------
Jupiter Securitization Corp., 2.43%, due 3/15/05 13,160,000 13,147,564
- ----------------------------------------------------------------------------------------------
MetLife Funding, Inc., 2.75%, due 5/20/05 12,680,000 12,602,511
- ----------------------------------------------------------------------------------------------
Morgan Stanley, Inc., 2.53%, due 3/10/05 19,020,000 19,007,970
- ----------------------------------------------------------------------------------------------
Nestle Capital Corp., 2.66%, due 5/03/05 9,450,000 9,406,010
- ----------------------------------------------------------------------------------------------
New Center Asset Trust, 2.63%, due 4/12/05 11,980,000 11,943,241
- ----------------------------------------------------------------------------------------------
Old Line Funding LLC, 2.49%, due 3/02/05 2,470,000 2,469,829
- ----------------------------------------------------------------------------------------------
Old Line Funding LLC, 2.48%, due 3/03/05 2,983,000 2,982,589
- ----------------------------------------------------------------------------------------------
Park Avenue Receivable Co. LLC, 2.54%, due 3/01/05 4,793,000 4,793,000
- ----------------------------------------------------------------------------------------------
Pfizer, Inc., 2.51%, due 3/23/05 1,000,000 998,466
- ----------------------------------------------------------------------------------------------
SBC Communications, Inc., 2.47%, due 3/08/05 17,350,000 17,341,667
- ----------------------------------------------------------------------------------------------
SBC Communications, Inc., 2.48%, due 3/14/05 2,485,000 2,482,775
- ----------------------------------------------------------------------------------------------
Sheffield Receivables Corp., 2.56%, due 3/28/05 800,000 798,464
- ----------------------------------------------------------------------------------------------
Svenska Handelsbanken, Inc., 2.6%, due 4/07/05 19,100,000 19,048,961
- ----------------------------------------------------------------------------------------------
Thunder Bay Funding LLC, 2.54%, due 3/22/05 5,350,000 5,342,073
- ----------------------------------------------------------------------------------------------
Thunder Bay Funding LLC, 2.64%, due 4/15/05 11,581,000 11,542,783
- ----------------------------------------------------------------------------------------------
UBS Finance Delaware LLC, 2.63%, due 4/18/05 19,030,000 18,963,268
- ----------------------------------------------------------------------------------------------
Wells Fargo & Co., 2.53%, due 3/24/05 10,000,000 9,983,836
- ----------------------------------------------------------------------------------------------
Total Commercial Paper, at Amortized Cost and Value $420,663,945
- ----------------------------------------------------------------------------------------------
U.S. Government Agency Obligations- 4.2%#
- ----------------------------------------------------------------------------------------------
Fannie Mae, 2.465%, due 4/20/05,
at Amortized Cost and Value $20,000,000 $19,931,528
- ----------------------------------------------------------------------------------------------
Repurchase Agreement - 2.5%
- ----------------------------------------------------------------------------------------------
Goldman Sachs, 2.61%, dated 2/28/05, due 3/01/05, total to be
received $11,927,865 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account), at
Cost $11,927,000 $11,927,000
- ----------------------------------------------------------------------------------------------
Total Investments, at Amortized Cost and Value $470,652,473
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.3)% (1,452,690)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $469,199,783
- ----------------------------------------------------------------------------------------------
# The rate shown represents an annualized yield at time of purchase.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 2/28/05
ASSETS
Investments, at amortized cost and value $470,652,473
- --------------------------------------------------------------------------------------------------
Cash 805
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 1,126,870
- --------------------------------------------------------------------------------------------------
Interest receivable 10,665
- --------------------------------------------------------------------------------------------------
Other assets 1,644
- --------------------------------------------------------------------------------------------------
Total assets $471,792,457
- --------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $17,650
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 2,141,269
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 7,712
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 162,007
- --------------------------------------------------------------------------------------------------
Distribution and service fee 41,998
- --------------------------------------------------------------------------------------------------
Administrative fee 534
- --------------------------------------------------------------------------------------------------
Program manager fee 76
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 221,428
- --------------------------------------------------------------------------------------------------
Total liabilities $2,592,674
- --------------------------------------------------------------------------------------------------
Net assets $469,199,783
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Net assets (represented by paid-in capital) $469,199,783
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 469,199,783
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $85,338,980
- --------------------------------------------------------------------------------------------------
Shares outstanding 85,338,980
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $326,461,837
- --------------------------------------------------------------------------------------------------
Shares outstanding 326,461,837
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $54,624,445
- --------------------------------------------------------------------------------------------------
Shares outstanding 54,624,445
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- --------------------------------------------------------------------------------------------------
Class 529A shares
Net assets $1,798,995
- --------------------------------------------------------------------------------------------------
Shares outstanding 1,798,995
- --------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
share $1.00
- --------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $358,213
- --------------------------------------------------------------------------------------------------
Shares outstanding 358,213
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- --------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $617,313
- --------------------------------------------------------------------------------------------------
Shares outstanding 617,313
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- --------------------------------------------------------------------------------------------------
A contingent deferred sales charge may be imposed on redemptions of Class A,
Class B, Class C, Class 529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- ---------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund operations.
SIX MONTHS ENDED 2/28/05
NET INVESTMENT INCOME
Interest income $5,395,874
- ---------------------------------------------------------------------------------------------------
Expenses
- ---------------------------------------------------------------------------------------------------
Management fee $1,436,969
- ---------------------------------------------------------------------------------------------------
Trustees" compensation 10,732
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 614,479
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 1,854,648
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 321,241
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 2,400
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 1,698
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 3,175
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 1,706
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 425
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 793
- ---------------------------------------------------------------------------------------------------
Administrative fee 14,518
- ---------------------------------------------------------------------------------------------------
Custodian fee 75,901
- ---------------------------------------------------------------------------------------------------
Printing 1,872
- ---------------------------------------------------------------------------------------------------
Postage 27,058
- ---------------------------------------------------------------------------------------------------
Auditing fees 15,356
- ---------------------------------------------------------------------------------------------------
Legal fees 11,776
- ---------------------------------------------------------------------------------------------------
Miscellaneous 57,077
- ---------------------------------------------------------------------------------------------------
Total expenses $4,451,824
- ---------------------------------------------------------------------------------------------------
Fees paid indirectly (5,326)
- ---------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser and distributor (1,048,742)
- ---------------------------------------------------------------------------------------------------
Net expenses $3,397,756
- ---------------------------------------------------------------------------------------------------
Net investment income $1,998,118
- ---------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED YEAR ENDED
2/28/05 8/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment income declared as distributions
to shareholders $1,998,118 $968,695
- ------------------------------------------------------ ------------- -------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- ----------------------------------------------------------------------------------------------------
Class A $(718,683) $(609,133)
- ----------------------------------------------------------------------------------------------------
Class B (1,084,714) (295,011)
- ----------------------------------------------------------------------------------------------------
Class C (183,087) (60,049)
- ----------------------------------------------------------------------------------------------------
Class 529A (9,695) (3,925)
- ----------------------------------------------------------------------------------------------------
Class 529B (689) (190)
- ----------------------------------------------------------------------------------------------------
Class 529C (1,250) (387)
- ------------------------------------------------------ ------------- -------------
Total distributions declared to shareholders $(1,998,118) $(968,695)
- ------------------------------------------------------ ------------- -------------
Change in net assets from fund share transactions $(144,531,320) $(409,455,407)
- ------------------------------------------------------ ------------- -------------
NET ASSETS
At beginning of period $613,731,103 $1,023,186,510
- ----------------------------------------------------------------------------------------------------
At end of period $469,199,783 $613,731,103
- ----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the fund's operation). Certain information reflects financial
results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS A 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.01 $0.01 $0.01 $0.01 $0.05 $0.05
- --------------------------------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.01) $(0.01) $(0.01) $(0.01) $(0.05) $(0.05)
- --------------------------------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------- ------- ------- ------- ------- ------- -------
Total return (%) 0.80++ 0.58 0.69 1.49 4.85 5.39
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.46+ 0.55 0.71 0.81 0.80 0.81
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.59+ 0.58 0.70 1.44 4.82 5.18
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $85,339 $101,287 $214,275 $242,230 $107,346 $76,062
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. In addition, effective June
7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially
all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been incurred by the
fund, the net investment income per share and the ratios would have been:
Net investment income $0.01 $0.00+++ $0.01 $0.01 $0.05 $0.05
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.85+ 0.79 0.81 0.91 0.90 0.91
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.20+ 0.34 0.60 1.34 4.72 5.08
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED -----------------------------------------------------------------------------
CLASS B 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.00+++ $0.00+++ $0.00+++ $0.00+++ $0.04 $0.04
- ------------------------------ ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.04) $(0.04)
- ------------------------------ ------- ------- ------- ------- ------- -------
Net asset value, end of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------ ------- ------- ------- ------- ------- -------
Total return (%) 0.30++ 0.06 0.06 0.49 3.81 4.35
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.46+ 1.07 1.35 1.81 1.80 1.81
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.58+ 0.06 0.06 0.50 3.65 4.18
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $326,462 $429,844 $647,269 $741,638 $514,324 $313,782
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. The distributor voluntarily
waived a portion of its fee for certain of the periods indicated. In addition, effective June 7, 2004, the investment
adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially all of Independent Chief
Compliance Officer service fees paid to Tarantino LLC. If these fees had been incurred by the fund, the net investment
income (loss) per share and the ratios would have been:
Net investment income (loss) $0.00+++ $(0.01) $0.00+++ $0.00+++ $0.04 $0.04
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.85+ 1.80 1.81 1.91 1.90 1.91
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.19+ (0.67) (0.40) 0.40 3.55 4.08
- ------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31
ENDED ---------------------------------------------------------------------------
CLASS C 2/28/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#
Net investment income(S) $0.00+++ $0.00+++ $0.00+++ $0.00+++ $0.04 $0.04
- -------------------------------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.04) $(0.04)
- -------------------------------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------- ------- ------- ------- ------- ------- -------
Total return (%) 0.30++ 0.06 0.06 0.49 3.80 4.32
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.46+ 1.07 1.36 1.81 1.80 1.81
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.57+ 0.06 0.06 0.50 3.77 4.15
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $54,624 $80,482 $159,715 $159,254 $125,200 $52,426
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. The distributor voluntarily
waived a portion of its fee for certain of the periods indicated. In addition, effective June 7, 2004, the investment
adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially all of Independent Chief
Compliance Officer service fees paid to Tarantino LLC. If these fees had been incurred by the fund, the net investment
income (loss) per share and the ratios would have been:
Net investment income (loss) $0.00+++ $(0.01) $0.00+++ $0.01 $0.04 $0.04
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.85+ 1.79 1.81 1.91 1.90 1.91
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.18+ (0.66) (0.39) 0.40 3.67 4.05
- ------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ----------------------------- ENDED
CLASS 529A 2/28/05 2004 2003 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.01 $0.00+++ $0.00+++ $0.00+++
- ----------------------------------------------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.01) $(0.00)+++ $(0.00)+++ $(0.00)+++
- ----------------------------------------------- ------- ------- ------- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------- ------- ------- ------- -------
Total return (%) 0.68++ 0.33 0.45 0.08++
- ----------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.71+ 0.80 0.96 1.16+
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 1.43+ 0.34 0.33 1.04+
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,799 $1,140 $1,164 $30
- ----------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. The distributor
voluntarily waived a portion of its fee for certain of the periods indicated. In addition, effective June 7,
2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had
been incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.00+++ $(0.00)+++ $(0.00)+++ $0.00+++
- ----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.45+ 1.39 1.41 1.26+
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.69+ (0.25) (0.12) 0.94+
- ----------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ----------------------------- ENDED
CLASS 529B 2/28/05 2004 2003 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.00+++ $0.00+++ $0.00+++ $0.00+++
- ----------------------------------------------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.00)+++
- ----------------------------------------------- ------- ------- ------- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------- ------- ------- ------- -------
Total return (%) 0.20++ 0.06 0.07 0.02++^
- ----------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.68+ 1.08 1.25 2.06+
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 0.41+ 0.07 0.06 0.23+
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $358 $339 $253 $5
- ----------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. The distributor
voluntarily waived a portion of its fee for certain of the periods indicated. In addition, effective June 7,
2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had
been incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.00)+++ $(0.01) $(0.01) $0.00+++
- ----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.11+ 2.03 2.06 2.16+
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.02)+ (0.88) (0.75) 0.13+
- ----------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ Previous return has been restated from 0.01% to 0.02%. Actual return was 0.015%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 8/31 PERIOD
ENDED ----------------------------- ENDED
CLASS 529C 2/28/05 2004 2003 8/31/02*
(UNAUDITED)
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.00+++ $0.00+++ $0.00+++ $0.00+++
- ----------------------------------------------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.00)+++
- ----------------------------------------------- ------- ------- ------- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------- ------- ------- ------- -------
Total return (%) 0.20++ 0.06 0.07 0.02++^
- ----------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.68+ 1.08 1.22 2.06+
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 0.39+ 0.06 0.05 0.23+
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $617 $640 $512 $5
- ----------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. The distributor
voluntarily waived a portion of its fee for certain of the periods indicated. In addition, effective June 7,
2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had
been incurred by the fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.00)+++ $(0.01) $(0.01) $0.00+++
- ----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.11+ 2.03 2.06 2.16+
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.04)+ (0.89) (0.79) 0.13+
- ----------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C shares, July 31, 2002, through August 31, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ Previous return has been restated from 0.01% to 0.02%. Actual return was 0.015%.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Cash Reserve Fund (the fund) is a diversified series of MFS Series Trust I
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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.
INVESTMENT VALUATIONS - Money market instruments are valued at amortized cost,
which the Trustees have determined in good faith approximates market value. The
fund's use of amortized cost is subject to the fund's compliance with certain
conditions as specified under Rule 2a-7 of the Investment Company Act of 1940.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize a joint
trading account for the purpose of entering into one or more repurchase
agreements.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized and accreted for financial statement purposes and tax
reporting purposes in accordance with U.S. generally accepted accounting
principles and federal tax regulations, respectively.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the six months ended February 28, 2005, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
The tax character of distributions declared for the years ended August 31, 2004
and August 31, 2003 was as follows:
8/31/04 8/31/03
Distributions declared from:
----------------------------------------------------------
Ordinary income $968,695 $1,788,868
----------------------------------------------------------
As of August 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $56,551
----------------------------------------------------------
Capital loss carryforward (441)
----------------------------------------------------------
Post-October capital loss deferral (4)
----------------------------------------------------------
Other temporary differences (55,351)
----------------------------------------------------------
Post-October capital loss deferrals represent losses realized during the
current fiscal year, but recognized for tax purposes in the next fiscal year.
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on August 31, 2012 ($441).
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on the value
of settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. Differences in per
share dividend rates are generally due to differences in separate class
expenses. Class B and Class 529B shares will convert to Class A and Class 529A
shares, respectively, approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at an annual rate of
0.55% of the fund's average daily net assets.
As part of a settlement agreement with the New York Attorney General concerning
market timing and related matters (See Legal Proceedings footnote), MFS has
agreed to reduce the fund's management fee to 0.15% of average daily net assets
for the period March 1, 2004 through February 28, 2009, which is shown as a
reduction of total expenses in the Statement of Operations. During this time
period, the Board of Trustees will continue to review the appropriateness of
all advisory fees in accordance with their oversight responsibilities. After
February 28, 2009 the management fee will be determined in accordance with then
existing review policies approved by the Board of Trustees overseeing the fund.
Management fees incurred for the six months ended February 28, 2005 were an
effective rate of 0.15% of average daily net assets on an annualized basis.
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). The fund has an
unfunded defined benefit plan for retired Independent Trustees. Included in
Trustees" compensation is a pension expense of $2,205 for retired Independent
Trustees for the six months ended February 28, 2005.
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.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. 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.
The fund paid MFS an administrative fee up to the following annual percentage
rates of the fund's average daily net assets:
9/01/04
THROUGH
EFFECTIVE DATE 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
- -------------------------------------------------------------------------------
Next $2.5 billion 0.00832% 0.01206%
- -------------------------------------------------------------------------------
Next $2.5 billion 0.00032% 0.00056%
- -------------------------------------------------------------------------------
In excess of $7 billion 0.00000% 0.00000%
- -------------------------------------------------------------------------------
The March 1, 2005 rates were not effective during the current reporting period.
For the six months ended February 28, 2005, the fund paid MFS $14,518
equivalent to 0.0055% of average daily net assets, to partially reimburse MFS
for the costs of providing administrative services.
DISTRIBUTOR - The Trustees have adopted a distribution plan for Class A, Class
B, Class C, Class 529A, Class 529B, and Class 529C shares pursuant to Rule
12b-1 of the Investment Company Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD an annual
percentage of its average daily net assets attributable to certain share
classes as compensation for services provided by MFD and financial
intermediaries in connection with the distribution and servicing of its shares.
One component of the plan is a distribution fee and another is a service fee
paid by MFD to financial intermediaries that enter into sales or service
agreements with MFD or its affiliates based on the average daily net assets of
accounts attributable to such intermediaries. 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%
- -------------------------------------------------------------------------------
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 may retain all or a portion of the service fee, including for accounts for
which there is no financial intermediary of record. Service fees retained by
MFD for the six months ended February 28, 2005 amounted to:
CLASS A CLASS B CLASS C
Service Fee Retained by MFD $-- $3,731 $3,842
- -------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $-- $6 $26
- -------------------------------------------------------------------------------
Payment of the 0.10% per annum Class A distribution fee and payment of the
0.25% per annum service fee will commence on such date as the Trustees of the
fund may determine. The 0.25% per annum Class 529A service fee and 0.10% of
the Class 529A distribution fee are currently being waived. The remaining
0.15% per annum distribution fee will be implemented on such date as the
Trustees of the Trust may determine. During the period, MFD voluntarily waived
receipt of a portion of the fund's distribution and service fees on Class 529B
and Class 529C, as shown in the Statement of Operations.
Fees incurred under the distribution plan during the six months ended February
28, 2005 were as follows:
CLASS A CLASS B CLASS C
Effective Annual Percentage Rates 0.00% 1.00% 1.00%
- -------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Effective Annual Percentage Rates 0.00% 0.96% 0.96%
- -------------------------------------------------------------------------------
Certain Class A shares acquired through an exchange may be subject to a CDSC
upon redemption depending upon when the shares exchanged were originally
purchased. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B and Class 529B shares (including shares acquired
through an exchange depending on when the shares exchanged were originally
purchased) in the event of a shareholder redemption within six years from the
end of the calendar month of purchase. Class C and Class 529C shares
(including shares acquired through an exchange depending on when the shares
exchanged were originally purchased) are subject to a contingent deferred
sales charge in the event of a shareholder redemption within the first year
from the end of the calendar month of purchase. Contingent deferred sales
charges imposed during the six months ended February 28, 2005 were
as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred Sales
Charges Imposed $106 $700,890 $7,898 $-- $--
- --------------------------------------------------------------------------------
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. For the period September 1, 2004 through December 31, 2004,
the fund was charged up to 0.0861% of its average daily net assets. For the
period January 1, 2005 through February 28, 2005, the fund is charged up to
0.1035% of its average daily net assets. For the six months ended February 28,
2005, the fund paid MFSC a fee of $235,100 for shareholder services which
equated to 0.0890% of the fund's average daily net assets. Effective March 1,
2005, the fund is charged up to 0.1159% of its average daily net assets.
Shareholder service costs include out of pocket expenses and sub accounting
services expenses paid by MFSC on behalf of the fund and subsequently
reimbursed to MFSC which amounted to $193,575 and other costs paid by the fund
directly to unaffiliated vendors for the six months ended February 28, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$3,627,658,730 and $3,795,724,000, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended Year ended
2/28/05 8/31/04
SHARES & DOLLARS SHARES & DOLLARS
CLASS A SHARES
Shares sold 33,975,100 209,078,235
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Shares issued to shareholders in
reinvestment of distributions 670,849 534,126
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Shares reacquired (50,593,942) (322,599,964)
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Net change (15,947,993) (112,987,603)
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CLASS B SHARES
Shares sold 80,225,227 341,459,510
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Shares issued to shareholders in
reinvestment of distributions 1,013,850 289,935
- ----------------------------------------------------------------------------
Shares reacquired (184,620,885) (559,174,351)
- ----------------------------------------------------------------------------
Net change (103,381,808) (217,424,906)
- ----------------------------------------------------------------------------
CLASS C SHARES
Shares sold 25,436,871 186,509,632
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Shares issued to shareholders in
reinvestment of distributions 171,288 54,855
- ----------------------------------------------------------------------------
Shares reacquired (51,465,229) (265,797,616)
- ----------------------------------------------------------------------------
Net change (25,857,070) (79,233,129)
- ----------------------------------------------------------------------------
CLASS 529A SHARES
Shares sold 807,198 647,988
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Shares issued to shareholders in
reinvestment of distributions 9,695 3,867
- ----------------------------------------------------------------------------
Shares reacquired (157,682) (675,589)
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Net change 659,211 (23,734)
- ----------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 24,671 353,059
- ----------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 687 181
- ----------------------------------------------------------------------------
Shares reacquired (6,066) (267,144)
- ----------------------------------------------------------------------------
Net change 19,292 86,096
- ----------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 109,679 517,206
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Shares issued to shareholders in
reinvestment of distributions 1,238 376
- ----------------------------------------------------------------------------
Shares reacquired (133,869) (389,713)
- ----------------------------------------------------------------------------
Net change (22,952) 127,869
- ----------------------------------------------------------------------------
(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 six months ended February 28, 2005 was $1,377,
and is included in miscellaneous expense. The fund had no significant
borrowings during the six months ended February 28, 2005.
(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. 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 intermediaries who support the sale of MFS
fund shares. 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. The
final distribution plan was approved by the SEC on January 21, 2005 and the
affected MFS funds received the payment on February 16, 2005.
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 open-end retail fund ("MFS
retail funds") 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 they
prohibited market timing, MFS did not limit trading activity in 11 domestic
large cap stock, high grade bond and money market retail funds. MFS" former
Chief Executive Officer and former President 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. These individuals 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, MFS Fund Distributors, Inc., MFS Service Center,
Inc., MFS Corporation Retirement Committee, Sun Life Financial Inc., various
MFS funds, certain current and/or former 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 ERISA
actions by participants in certain retirement plan accounts on behalf of those
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, Allianz Dresdner),
No. 1:04-md-15863 (transfer began March 19, 2004)). The market timing cases
related to the MFS complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM
(direct), Hammerslough v. MFS et al., Case No. 04-md-01620 (derivative) and
Anita Walker v. MFS et al., Case No. 1:04-CV-01758 (ERISA). The plaintiffs in
these consolidated lawsuits generally seek injunctive relief including removal
of the named Trustees, adviser and distributor, rescission of contracts and
12b-1 Plans, disgorgement of fees and profits, monetary damages, punitive
damages, attorney's fees and costs and other equitable and declaratory relief.
Two 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) (a consolidated action) and Marcus Dumond, et al. v. Massachusetts
Financial Servs. Co., et al., No. 04cv11458 (GAO)). The plaintiffs in these
lawsuits generally seek compensatory damages, punitive damages, recovery of
fees, rescission of contracts, an accounting, restitution, declaratory relief,
equitable and/or injunctive relief and attorney's fees and costs. The various
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 (ii) received excessive compensation as fiduciaries to the MFS funds,
or (iii) 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. 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 certain 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 distributed $50 million 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.
- -------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
- -------------------------------------------------------------------------------
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.
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.
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
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
LMM-SEM-04/05 64M
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
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.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
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 second fiscal quarter covered by the 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: Not applicable.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST I
By (Signature and Title)* ROBERT J. MANNING
-----------------------------------------------------
Robert J. Manning, President
Date: April 22, 2005
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* ROBERT J. MANNING
-----------------------------------------------------
Robert J. Manning, President (Principal Executive
Officer)
Date: April 22, 2005
--------------
By (Signature and Title)* RICHARD M. HISEY
-----------------------------------------------------
Richard M. Hisey, Treasurer (Principal Financial
Officer and Accounting Officer)
Date: April 22, 2005
--------------
* Print name and title of each signing officer under his or her signature.